SCMPro..... April 2013

SCMPr

Supply Chain Management Professional

n practice n Logistics n knowledge n human resource n white paper April 2013

Vol. 1窶年o.3 `150

Air Cargo

Cautious Hope In This Issue hUMAN RESOURCE Plan for future Page..40

WORKFORCE mANAGEMENT The perfect order Page...43

Guru Speak Transportation: Time we professionalize Page...12

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editorial

Supply Chain Management the Next Frontier

T Girish V S Executive Editor

hese are tough times for the world economy. The world economy is being given regular jolts. Just as we believe the worst is behind us, fresh trouble erupts. However, the pundits believe the worst is over for the Indian economy. First the IMF, then the Prime Ministers Economic Advisory Council too says so - the Indian economy has bottomed out. The only place to go now is up! They predict the economy is poised to grow at 6.4% this fiscal. I hope this is true. For two years in a row, we have seen a fall in global trade. China is facing its own set of challenges. We need some good news.

The one sector whose health is directly linked to the economy is the air cargo section. As recession bites, and pressure on margins increase, shippers move from the costlier air transport to ocean freight or surface transport. In addition, the spread of information technology is bringing in much needed transparency into the sector. Surely, the air cargo industry is facing some headwinds. This issue of SCMPro takes a look at the air cargo industry – an industry that is a mere 2% of the global trade volume, but a healthy 35% of the global trade in value. We look at a few interesting aspects of the industry – from the forecast of air cargo by Boeing, to efreight to some innovative use of technology. One aspect we found was the need for the air cargo industry – especially the freight forwarders to move to more value added framework.

In addition we bring you a conversation we had with Howard Scott, the CEO of Big Bear Project Management on the state of the road transport sector in India. In a candid conversation, Howard spelt out what ails Indian road transport and what needs to be done. He aptly summarized it one word – professionalize! Yes sir, we can’t agree more.

And yes, we hope to see you active on our community pages. It is time we moved SCM from the back office to the limelight. The next frontier for India Inc is an efficient supply chain. And for this we need a vibrant SCM community to lead the change.

We have carefully selected a range of issues that we hope will hold your attention. And as always look forward to hearing from you.

Executive Editor

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Contents

06 Insight >> Installed Based Supply Planning: Pot-Of-Water model of forecasting.

10 Benchmark >>

Porter's 'Bottom of Pyramid' does provide a framework for corporate to understand Rural market complexity.

Indian companies should de-link their existing supply chain strategies which is more tilted towards shippers only.

35 concept >> Suppliers should allign their supply chain strategy within the customer tolerance time.

12 guru speak >> Howard Scott spells out why Indian transporter need to have more professional approach and organised.

38 basics >>

April 2013

Internal integration of business information systems is a critical step in supply chain management.

30 Academic Advocacy

>> Impact of sustainable manufacturing practices on consumer perception and revenue growth: an emerging economy prespective.

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33 Transportation >>

April 2013

16 lead story

SCMPr Executive Publisher Jayaram Nair jayaram.nair@scmp.in EDITORIAL Executive Editor Girish V S girish.vs@scmp.in Consultant Editor Dr. Rakesh singh rakesh.singh@scmp.in CREATIVE & Production Head Shivasankaran Pillai shiva.pillai@scmp.in advertising Soney Mathew soney.mathew@scmp.in

An interesting aspects of Air Cargo Industry from the forecast to e-freight to new market Indian players should explore.

40 Human resource >> Having a tailored approach to workforce planning will ensure companies remain competitive and ready for future.

43 workforce management >> The special report extracted from workforce management planning by Kronos - for service provider to improve Labor productivity, control Labor, sustain Profitable Revenue and customer satisfaction.

48 white paper >> An ISCM white paper on 'Intermal Business Information sharing' by using IT sucessfully..

Rashid Iqbal-Director rashid.iqbal@scmp.in Media Group 211/1, Sona Udyog, Parsi Panchayat Road, Andheri (East), Mumbai -400069 INDIA.

Printed and published by Jayaram Nair on behalf of B2B Media Group. Printed at SAP Print Solutions Pvt. Ltd, 28 Laxmi Ind. Estate, Lower Parel, Mumbai - 400 705, India and published at 211/1, Sona Udyog, Parshi Panchayat Rd., Andheri (E), Mumbai - 400069.

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Academic Partner

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April 2013

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insight

installed-base

Supply Planning Forecasting supply requirements for an installed base can be a tricky task. But a model called the Pot-of-Water can enhance the chances for success by carefully controlling and analyzing the inflows into the base—i.e., the pot—and the leaks by Larry Lapide.

I This article is an extract from Supply Chain Management Review (www.scmr.com) is reproduced with permission.

Dr. Lapide is a lecturer at the University of Massachusetts’ Boston Campus and is an MIT Research Affiliate. llapide@mit.edu

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recently got a call from a colleague who was consulting for a business that leases pallets regarding how the client might improve demand forecasting. I had her describe the business model. And after hearing it, I told her that improvements might be made by recognizing that this was a business that generates revenues from an “installed base” (in this case, of leased pallets). Revenue is derived when pallets are actively used to store and move goods around.

Pallets that are out of commission—such as ones broken or pilfered—generate no revenue. Thus, for the company to improve forecasting, it’s important to understand what is driving the installed base of pallets to grow or shrink. Stated simply, whenever a pallet goes out of commission, the base shrinks; with the addition of a new leased pallet, the base increases.

We then discussed a forecasting and planning concept that I’m very familiar with in

which the installed base is represented as a “Pot-of-Water” (P-of-W). In applying this concept, businesses strive to raise the level of water in the pot—by increasing the revenue base. I’ve had occasion to discuss this model with managers from sundry industries who have expressed great interest. So I decided to make it the topic of this column.

Installed-base Businesses Many installed-base businesses rely on annuity-like revenue streams derived from annual or multi-year service contracts. To give one example, I was a forecaster in the field service division of a computer manufacturer that sold service contracts to computer users. To forecast demand and support supply planning, we developed a P-of-W model to forecast the installed base of computers on service contracts. Similarly, businesses that offer post-sales support services, such as extended warranties on industrial and

insight consumer durable goods, could do the same.

Not just contract businesses can benefit from the P-of-W forecast model, however.

Sales of service parts, accessories, and consumables (such as printer ink cartridges) in support of durable-goods use, as well as the sales of Maintenance, Repair and Operations (MRO) goods also are driven by the size of an installed base.

The Pot-of-Water Model The P-of-W model is a cause-effect forecasting model in which the “effect” is customer demand for supply, while the “cause” is the size of the installed base of customers. This type of model is useful when it is easier to intermediately forecast the cause than it is to directly forecast the effect. For example, to more accurately forecast diaper sales, a P-of-W model would project the number of babies in diapers, and then use it to forecast diaper sales.

Exhibit 1 depicts the P-of-W model as a pot with the water level representing the size of an installed base. Over time, the level

EXHIBIT 1

Exhibit 1: The Pot-of-Water (P-of-W) Model The Pot-of-Water (P-of-W)Forecase Forecast Model New Installations and Contracts

Upgrades and Add-Ons

+

+

Renewals and Replacements

+

Pot of Water

Installed Base (Water) Level

-

Upgrades and Add-Ons

-

- Renewals and

Replacements

Decommissions and Cancellations

who have not previously done business with a company.

All of these obviously add to the level of the installed base.

2. Upgrades and Add-ons: These flows add or decrease

Upgrades could be customers that have scaled up their levels of service as well as those that have scaled down their services.

depends on four types of flows. Each is described below: 1. New Installations and Contracts: These SUPPLY represent users, products, or contracts thatCHAIN are new to an installed base as well as customers who have not previously done business with a company. All of these obviously it. add The sizelevel of ofthe base increases i to the the installed installed base. outweighs the and latter.

The opposite 2. Upgrades Add-ons: These flows holds tr add or decreasethe the inflows. size of an installed base. leaks exceed They represent existing contracts that have changed the services being purchased. UpInstalled Base Forecasting grades could be customers that have scaled up their levels of service as well as thoserequires that Forecasting an installed base esti have scaled down their services (thereby reof the four flows and using them to forec sulting in a “negative” upgrade). They could over with the a starting alsotime, be sitesbeginning that have changed configu- base. T might termsbeing of years, months, rationbe of in products serviced—for ex- or week ample, when accessory and peripheral addTo illustrate, here is how we used th ons are put onto service or taken off service the(thereby field resulting servicein division I mentioned earl a “negative” add-on). stantly trackedand andReplacements: monitoredThese the size and 3. Renewals represent existing contracts that have been our contract base of computer sites und afterstart expiring. might resultfuture in a Werenewed would

by They estimating mont net addition or subtraction from an installed terms of new oncontracts, upgrades base depending the size of the renewals. (involv to Replacements the configuration of equipment unde represent customers that have replaced the products being serviced with a contract renewals, and cancelled contrac different configuration (for example, when a applied these to the first month by addin new truck or piece of equipment is bought theto replace starting contract base (i.e., last mon an older one).

4.

Decommissions and Cancellations: base) to estimate the first month’s endin These represent contract cancellations then became the starting baseforofa the sec variety of reasons, such as moving to a comNext we applied the flows to the second petitor’s service and discontinuing the use of

sequentially did this for all succeeding m the planning horizon.

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insight

products being serviced. Manufacturing and sorting equipment lost in a fire, for example, would result in the decommission of what was being serviced under an MRO contract.

These flows represent decrements to an installed base.

Looked at another way, the flows described above represent streams flowing into the pot and leaking out of it. The size of the installed base increases if the former outweighs the latter. The opposite holds true when the leaks exceed the inflows.

this for all succeeding months over the planning horizon.

Supply Planning Installed base forecasts and associated flows are useful for estimating the supply needed to support customers, such as for their service part needs. For example, we estimated the demand for service parts using the bills-ofmaterial (BOMs) for equipment at contract sites along with part failure rates. Similarly, consumables, accessories, and MRO product

Supply planning driven by P-of-W installed base forecasts will often provide more accurate plans than can be attained through traditional time-series forecasting methods.

Installed Base Forecasting Forecasting an installed base requires estimating each of the four flows and using them to forecast the base over time, beginning with a starting base. The forecasts might be in terms of years, months, or weeks.

To illustrate, here is how we used the model in the field service division I mentioned earlier. We constantly tracked and monitored the size and changes to our contract base of computer sites under contract. We would start by estimating future monthly flows in terms of new contracts, upgrades (involving changes to the configuration of equipment under contract), contract renewals, and cancelled contracts.

We then applied these to the first month by adding them into the starting contract base (i.e., last month’s ending base) to estimate the first month’s ending base.

This then became the starting base of the second month. Next we applied the flows to the second month and sequentially did 8 SCMPr

April 2013

sales for other companies could be forecast using the estimated average sales rates of each operational piece of equipment. In addition, upgrades such as accessory and peripheral add-ons can be forecast using estimated sale rates for each installation site.

Supply planning driven by P-of-W installed base forecasts will often provide more accurate plans than can be attained through traditional time-series forecasting methods.

The reason is that traditional approaches extrapolate historical demand patterns to forecast future needs. If an installed base is stable, they work reasonably well. However, if a customer base is building rapidly (such as during the early stages of a new product) or is at an inflection point (such as when a product’s sales start to rapidly take a turn for the worse), extrapolating needs using historical patterns is misleading.

The takeaway: if you are doing planning for the supply needs of an installed base, you may want to try using a P-of-W model to help you develop more accurate plans.

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The Lessons of a Failure There are many questions that beg an answer to the failure of various corporate initiative for the vibrant rural market.

H

Rakesh Singh Director, Durgadevi Saraf Institute of Management Studies, Chairman ISCM.

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ariyali kisan Bazaar, a rural initiative of DSCL Corporation has closed almost all the seventy five plus rural outlets spread throughout northern India. Hariyali was one of the initiatives corporate India had taken to create vibrant rural markets.

Tata Chemical’s Tata Kisan Sansar, ITC’s E-Chaupal, Mahindra Krishi Bihar called Subhlabh all started a decade ago. Many other such initiatives were stated during the decade. These companies were excited by opportunities that rural markets offer and were hailed as great experiments. But despite the hype, none of them seems to have been able to create a sizable business. Most of these initiatives are still evolving and struggling to scale themselves and sustain the business model. With the closure of Mahindra Subhlabh earlier and Hariyali in November last, a number of questions have arisen about corporate initiative in Indian agriculture and rural markets.

There are many questions that beg an answer. Why has Hariyali failed as a business model? What are threats in terms of scaling and sustaining such business models? Can such business model succeed in fragile rural business environment? What needs to be done?

Busienss Model Hariyali, like all other initiatives, was the product of a very well thought out business model. These initiatives had a good intent of streamlining agricultural supply chain where farmers are constantly exploited by numerous agents and intermediaries in agricultural chain. There is huge appropriation of surplus by these intermediaries making farmers, processors and final consumer worse off. The Draconian APMC act in India has been one of the biggest policy drag on agriculture in India just benefitting traders. What is interesting is that when we profile the risk of the farmers and agribusiness company we find that they both face price, quality and quantity risk. Farmers do not know the price they will receive for their produce, if they will be able to sell all that they have produced and whether they will get the right price for their produce. Agri commodity companies do not know at what price will they be able to source their supplies, will they get the quantity they need and will they get the right quality of supplies. This increases the cost of doing business as transactions cost soar up in term of search, negotiation and monitoring amidst information

benchmark

An Indian cross border Agri Supply Chain, with linkages to global supply chains needs the active assistance of the Government. asymmetry created by the intermediaries in the Mandis. Most of the above initiatives had this as a part of their integrated business plan for rural India. ITC for instance has been able to reduce transaction costs both for farmers and itself creating a win-win situation. Others have been wanting to strengthen this prominent aspect of this model but have failed to do so effectively.

Issues

Going direct to the rural India as a structural option has its own drawbacks like huge proliferation of billing parties and highly complex delivery chain. Ability of company depot to service these distributers is limited resulting in high stock levels at some places and stockouts at other, increasing holding costs.

Indian agriculture suffers from poor quality of crop protection chemicals on the one hand and an inefficient and corrupt distribution system in almost all the other agricultural input - primarily seeds and fertilizers. Quality and timely availability along with high cost due to black marketing has been a matter of great concern.

Farmers are also unaware of the dynamics of optimal and sustainable use of these inputs. They often use overdoses of fertilizers and pesticides. There is an absence of an effective e service center which helps them adopt modern inputs effectively and optimally. The government training and visit extension system has not delivered like any other public services.

Hariyali Kisan Bazaar a unit of DSCL was primarily into retailing of Agri-inputs like pesticides, seeds and fertilizers and had diversified into consumer expendables and durables to service the rural market through Hariyali rural retail chain. Disseminating right kind of information and helping farmers adapt to modern methods and processes also becomes an important aspect of this model as it helps build trust and also thus help in scaling the business. Hariyali along with other similar initiatives had the good intent of adopting this but they failed to make this component of their business model effective.

Hariyali stores are in the form of a campus which provides one stop solution to all

the needs of the farmers .Selling to the rural customer and farmers in rural villages are difficult and inefficient. Local business unit has to generate its sales volume from the consumer base living in a narrow geographical range. This is clear when we look at the distribution of villages across the country.

Only around 13.2 percent of the villages are with population more than 2000. Serving these markets require low price point and high volumes business.

Reasons to fail But Instead Hariyali kisan bazaar became high price point and fluctuating volume.

The cost of distribution in remote of villages along with its supply chain cost went haywire. Going direct to the rural India as a structural option has its own drawbacks like huge proliferation of billing parties and highly complex delivery chain. Ability of company depot to service these distributers is limited resulting in high stock levels at some places and stockouts at other, increasing holding costs. Managing these dispersed campuses requires larger sales force, leading to increased costs. The cost of land and rent makes it difficult to service these markets with low price points. High price points along with fluctuating rural incomes because of vagaries of rains and drought makes high price point inevitable for a low price point market making all such experiments unsustainable.

The failure of such experiment forces one to think what needs to be done to make such experiments viable and sustainable in future. Prahalad’s Bottom of pyramid market framework does provide a framework for corporate to understand the complexity and help create virtuous cycle of creating buying power, shaping aspiration, tailoring solutions and finally improving access. For all these to happen, Indian firms must learn to collaborate and succeed. I will explore a approach in my next column‌..

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guru speak

T r a n s p o r tat i o n

Time We

Professionalize Lack of Professional pride and ownership of tasks with unduly demand from the users are some of the reasons keeping Indian Surface transport on the back foot says Howard James-Scott.

I

Howard James-Scott Howard James-Scott has over 25 years of Supply Chain and Logistics Operations experience. As an ‘India’ expert having relocated here in early 2007, Mr. James-Scott went on to complete his tenure in one of India’s top logistics companies as Chairman of the Operating Board, and in his day to day role as the Chief of Supply Chain Management Division. Prior to this appointment, Mr. Scott was the founder and Managing Director of his own Supply Chain Consultancy Practice focused on Mainland Europe, Africa and The Middle East where he gained a wealth of operational and strategic experience.

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t may sound rather rude but I have to say the most significant issue is a lack of professional pride and ownership of the task in hand for many the people involved with transportation. Furthermore those organizations that require service from these hard working transporters want everything for free and demand such without understanding the consequences of failure.

This cheap option position does not allow the service providers to use preventative maintenance and instead more fire fighting options are used to upgrade their equipment as often as they should or to have continuous training and development of their teams to prevent loss of life and loss of stock etc.

Not only do we abuse the vehicles, the real workhorse of India, but also we seriously abuse and underestimate the people doing this vital work.

Regarding vehicles: It is easy to reel out a long list of differences like consistent overloading, failure to maintain even the most fundamental tyre disciplines thereby causing significant additional fuel usage, failure to consider that the cab should be as comfortable and user friendly as possible, limited road support for the teams doing the work, inability to provide sealed transport for both security and safety and continuous border stops and checks and etc.

Regarding the driver and crews There are quite a number of differences here -poor pay, limited incentives, no training and development, no career proposition or personal development, no monitoring of activity and therefore abuse of working hours and no rest are some of the issues that easily to mind.

Working Model Companies have developed their own fleets due to a variety of reasons. Firstly this happened simply because there was no one else to do it. Furthermore it seemed a costly business that they wanted to control. There is a belief that if they have control over their own fleet they have control over the cost and the availability.

This is not necessarily true. Transport or Logistics is an area of absolute neglect in many companies. The transportation and logistics functions are not a priority for the senior management teams anyway. Consequently, they are usually handed over to second rung executives who simply carry out orders. Whereas in real terms the planning, coordination and provision of a comprehensive transport service is extremely demanding and needs to be done by very effective, proficient managers and supervisors who should be well trained and an integral part of the business. Unfortunately not many or-

guru speak ganizations recognize that as yet!

Those companies who have moved to taking Vendors for their transport – (please notice I did not use term like Contract lease or Contract Management) – have also got costs in mind. Many try to beat down the cost, at any cost, and by that I mean that they show no real appreciation of the complexities of the function or the quality of the service needed.

Organised V/s Unorganised Players 85% of the market is not controlled by the unorganized sector do. I would rather say that the market controls keeping them (the 85%) in place as a matter of controlling pricing and availability through consistent misuse and abuse which the organized sector will never permit. Remember everyone wants the service for free.

The demands in this sector are continuously changing but not as much as they will do when GST comes into force.

The demands in this sector are continuously changing but not as much as they will do when GST comes into force.

In a progressive transport system it is generally accepted that for long haul, you need a payload in excess of 24 tons, preferably 30, 40 and 49 tons if possible. If this happens, the transporter will have a good chance of remaining in business. This means that you need the capacity and wherewithal to work with multiple clients, multiple products, do multiple collections and multiple drops whilst you are out on the road. This also means that you follow the laws, compliance and regulation of the land and adopt a highly disciplined, professional approach to your work. Also it is of important that the drivers behaves like a businessman and/or an extension of the company they represent.

Once GST has an extensive hold on the country this will become the norm. India has one of the largest stock holdings in the world which is largely due to the current tax

systems and associated administration and bureaucracy which demand stock to be held in each state. This stock has a very high value as tied up working capital, which companies simply cannot afford to have. Inventory should have velocity and its value should be appreciated whilst it is in motion not standing as stock in a warehouse.

Progressive transport companies should now be looking at how this is dealt with elsewhere in the world, not because the rest of the world is better than us but because most of them have been through this as an evolutionary process. For us it is likely to become a revolutionary aspect for the provision of a comprehensive, professional transport system in the country.

Users Expectations: Usually Logistics Service providers complain that the buyers of logistics services from manufacturing firms are known to have a strong focus on cost reduction. They are said to not focus enough on service and performance metrics.

This behavior is not new, nor is it only India specific. As a seller of services in India however I did become very tired when meeting CFOs, COO and even CEOs who simply asked us to reduce their transport or associated logistics costs without further considering what a professional Supply Chain organization might do outside of bleeding for them to make more money.

The overriding aim of a good service provider through collaborative business practices with their clients is to try and make their clients more profitable and successful. If this is the case all we ask in return is to be recognized as a business partner and paid accordingly. It is interesting to note that logistics - movement and storage without any value add services – is only about 35% of the tangible supply chain effecting costs in a company and if anything needs reducing you can guarantee it will be found along the whole value chain and not simply in the transport/warehouse office.

The monitoring of both performance and productivity is a set of indicators which can be easily set and policed by both the service provider and the client. If this is true they can work together to control and maintain costs whilst improving service and reducing SCMPr

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guru speak loss. Is this not better than simply knocking 25paise of the price per km?

Have a look at the MNCs now working in the Supply Chain arena in India. The simple fact that they are here testifies to the acceptance of change and the application of best practices. Times are changing and the fittest, brightest and most agile will survive, others will perish, this may be particularly so for the unorganized transport sector company which does not embrace the move towards GST and prepare accordingly. Remember it is not global best practice we seek but appropriate best practice for India.

ance and productivity and with very high quality standards that keeps them in business. Who would not want to do that sort of driving? It is coming to India so we really need to start thinking about it.

Technology As I said earlier that we will move to Multi client, multi products, multi collections and multi drops, there really is not a lot of choice of the service providers. This alone demands much more coordination and accuracy of detail. We will need to use IT more effectively if we are to mature as a service industry.

Shortage of Driver

Way Ahead for Service provider

Drivers are cited to be major constraints to the growth of this industry might be very true although I am not too certain many organizations in the country are turning their minds to this problem. But I do believe that no Indian father would readily put his arm around his son’s shoulder and advise him to become a driver. This is not necessarily true in other areas of the world were an owner driver, with some experience, and genuine business acumen can earn as much as 2000 - 3000 British pounds a week.

These are dedicated, professional drivers / owners with direct interest in good perform-

Prepare for GST but live in the day as we still do not know when it will come. Get together with others if you are a small or medium business and make some hard decisions about how to construct the fleet - Primary, Secondary and Tertiary fleets will all have different connotations soon.

Come to terms with single point of contact for clients and take up the best ERP, TMS and WMS you can afford. Look at owner/driver combos, driver training and take a very professional look at safe conduct and safe driving techniques, management and operations from other countries.

www.scmp.in ...live supply chain 14 SCMPr

April 2013

Industry Portal for the Supply Chain Professional

BY INVITATION ONLY ISCM Presents

A Panel Discussion on

The first ISCM Community Initiative

“Preparing for the ASEAN Opportunity” The ASEAN is rising. And they will redefine the way we do business in this part of the globe.

Developments in ASEAN – like the proposed roadway from Thailand through Myanmar to India will have a huge impact on the supply chains in South East Asia. To understand the impact of these developments on Indian businesses and supply chains, ISCM is organizing an exclusive, by invitation only, panel discussion with a few leading luminaries from across the globe.

The Expert panelists Mr. Paul Bradley Chairman & CEO Caprica International Singapore

Dr. Mahender Singh CEO and Rector, Malaysia Institute for Supply Chain Innovation, Malaysia

The Panel will be moderated by Girish V S – Executive Director ISCM and Executive Editor SCM Pro.

Dr. Rakesh P Singh Chairman ISCM and Director Durgadevi Saraf Institute of Management Studies

Mr. Detlev Janik Regional Director - South / South East Asia, Dachser, Singapore

Date: 30 May 2013 The panel discussion will be followed by cocktails and dinner.

If you are interested in attending the panel discussion, please register at http://www.iscmindia.net/web/events1.html

Presenter

Media Partner

Institute of Supply Chain & Management

1st Floor, Durgadevi Saraf Institute of Management Studies, S V Road, Malad West, Mumbai 400064. email:info@iscmindia.net  website: www.iscmindia.net

Lead story

Air Cargo Industry

Cautious Hope

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lead story

T

Air Cargo Industry is a direct pointer to the health of a country. Girish V.S., Executive Editor discuss why industry need to move fast.

he air cargo industry is at a cross road. This is an industry that contributes 5% of the global freight by volume and 35% by value. This is an industry with high operating costs and considerable sensitivity to external factors such as fuel expenses, razorthin margins and extreme cost pressures. This is an industry that depends on continued growth of the world economy for its own growth. The past couple of years have been one of contraction for the industry–the second time in the history of air cargo that we have seen two bad years in succession. The air cargo industry needs to change.

For this issue of SCMPro we take a look at this important part of the global supply chain.

We begin with an extract of the World Air Cargo Forecast by Boeing.

Once in two years Boeing publishes a report on the state of world cargo industry and the forecast for the next couple of years. The report forecasts that the worst is behind us and that the world air cargo traffic will more than double over the next 20 years, compared to 2011 levels, for an average 5.2 per cent annual growth rate. That is if the world moves back into the long term growth rate of 3.2 per cent. Also, Asia will continue to lead the world air cargo industry in average annual growth rates, with domestic China and intra-Asia markets expanding 8.0 per cent and 6.9 per cent per year, respectively.

We next take a look at an initiative that IATA hopes will bring in the much needed boost to profitability–e-freight. The air cargo industry typically generates around 30 documents for a single shipment - customs forms, transportation docs, commercial documents and the like. In addition, up to seven entities like shippers, freight forwarders, ground-handling agents, airlines, customs brokers, customs agents and other government authorities are involved in the shipping process. At each step of the process, the number of documents and the complexity of the documents expand, thereby increasing the cost and the chances of human errors. E-freight is an initiative to cut through the paper clutter and make movement of goods and documents faster, cheaper and more efficient.

We move on to cover some of the innovative uses of technology that have been made by various players across the globe. The air cargo industry has been slow to adopt technology in its operations or to increase customer service levels. Probably due to margin pressures or because transparency may lead to lower margins for themselves. The writing on the wall is clear–the air cargo industry has to adopt to the changing transparency requirements. We take a look at the other technology initiatives for air cargo industry–either to promote efficiency or to increase customer service and satisfaction.

We then move on to the possible future trade line–trade between India and Africa–the emerging destination for trade. Africa with its vast natural resources and potential as the food basket for the world is set to be a major destination for global trade–and as the development picks up in the continent, we will see trade rising. We look at why India cannot afford to miss the bus on Africa and why we need to plan for Africa.

We end the series with a look at the capabilities that Indian freight forwarders have to develop to compete in a globalized trade environment.

International freight forwarders (IFFs) are the key logistical intermediaries in international trade. They provide a large numbers of functions that facilitate the movement of cross border segments like paying freight charges, tracing and expediting shipments and making routing recommendations for shippers.

Happy reading.

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17

Lead story

World Air Cargo Forecast Economic activity, as measured by world GDP, remains the primary driver of air traffic growth. World economic growth over the next 20 years, will help air cargo traffic grow.

World Air Cargo Forecast cargo 2012-2013

Executive Summary DP growth is a major driver of international

G

trade and air cargo traffic. There is a widely held hope that despite the near-term challenges, world economy will return to its long-term historic growth trend of 3.2 per cent per annum. The current deceleration in world trade dating back to Air cargo traffic contracted slightly in 2011 andin2012 2011 is expected to end sometime 2013 as the pace After rebounding sharply in 2010 from the depressed levels of global growth strengthens. This spells good news of 2009, demand for air cargo transport began to weaken in forcontraction the industry.byAccording to data air cargo early 2011, sliding into May of that year.available, The slide traffic rebounded sharply in 2010 from the depressed continued into the first 8 months of 2012, with year-to-date traffic levels of 2009.slowdown, But demand began weaken in early down 2%. Despite the near-term world air to cargo traffic Every two years 2011, sliding into contraction by May 2011.

Air willBoeing more publishes than double over the next 20 years, compared to 2011 cargo slightlyrate. in 2011 and 2012.ofThe slide levels, for an 5.2%contracted annual growth The number a report on averagetraffic World Air airplanes in Cargo, the freighter fleet will increase more than 80% with over yearcontinued into the firstby 8 months of 2012, provide thetonext twoandecades. to-date traffic down 2 per cent. overview of the according to the report, despite this slowprospects for the In 2011, world air cargoHowever, traffic declined about 1.0%, after industry.

We bring down, world air cargo traffic will more than adouble expanding 18.5% in 2010. This exaggerated expansion reflects you the excerpts over the next 20 years, compared to 2011 levels, for an normal recovery from the currentfrom the precipitous drop in cargo traffic during average 5.2 per cent annual growth rate.

The number 2008 andThe 2009, report. next when traffic fell 3.2% and 9.6%, respectively—the report is due in of airplanes in the freighter fleet will increase by first time that air cargo traffic contracted in two consecutive years.more 2014.

If the current declinethan continues through thetwo remainder 80% over the next decades.of 2012, however, the years 2011 and 2012 will mark the second such occurrence. World air cargo traffic has expanded only 3.7% per year average since 2001. Of greater concern, traffic has grown April 2013 Pr 18onSCM only 2.0% per year since 2004—much slower than the 6.7% historical growth trend maintained for the 23 years between

In 2011, world air cargo traffic declined about 1.0 per cent, after expanding 18.5 per cent in 2010. This surge reflected a normal recovery from the steep drop in cargo traffic during 2008 and 2009, when traffic fell 3.2 per cent and 9.6 per cent, respectively—the first World air cargo traffic has slowed over the past decade Actual traffic, revenue tonne-kilometers (RTKs) 250 3.7% growth per year

200 6.1% growth per year

150 100

6.9% growth per year

50 0 1981

1986

1991

1996

2001

2006

2011

Passenge • 1989–200

1999-200

Rising fuel costs have dampened world air cargo traffic growth

restock depleted inventories.

the first quarter of 2011, an were on But starting in June expanding 2010, jet fuel prices the rise, jumping 42 per cent by December d to first quarter 2010, after peaking 2011. This air cargo 2007. Butcontributed startingsignificantly in June to2010, jettraffic fuelslowdown.

To add to the problems, the civil unrest of the Arab limbing 42%

by December 2011. This Spring, the Japan earthquake, and flooding in Thaio an air cargo traffic slowdown that was shocks land acted as a drag.

The latter two exogenous nrest of the Arabmanufacture Spring uprisings, thecomponents disrupted of automobile information goods, of which are uake, andandflooding intechnology Thailand.

Theboth latter key commodity groups for air cargo. isrupted manufacture of automobile Rising fuel prices have been a factor in air cargo tion technology (IT) goods, of which traffic slowdowns since late both 2004, diverting air cargo ps for airtocargo. road transport and maritime modes, which are less sensitive to fuel costs. The price of jet fuel has tripled

een a factor in air slowdowns over the pastcargo 8 years, traffic and prices are likely to remain volatile as the threat of supply disruptions air cargo to road transport and maritimepersists.

In fuel the near term, The high unemployment in developed ensitive to costs. price of jet fuel economies, tight fiscal policy in Europe and the Unit8 years, ed and prices are likely to remain States, and overall restrained consumer spending upply disruptions persists. the near will also dampen air cargoIn growth. t in developed economies, tightoilfiscal On a positive note, however, and jet fuel prices are forecast to remain around mid-2012 United States, and overall restrained levels or, in someair scenarios, decline over the next 3 to 5 also dampen cargoeven growth.

ved.

years. Economic activity, as measured by world GDP, remains the primary driver of air cargo traffic growth.

World economic growth averaging 3.2% over the next 20 years, coupled with the forecasted stable fuel prices, will help air cargo traffic grow.

Yield trends Freight yields have declined at an average rate of 4.2% per year over the past 20 years. Continuing

1986

1991

1996

2001

2006

Passe • 1989–

2011

1999-

lead story

Rising fuel costs have dampened world air cargo traffic growth Monthly percentage of change over prior year

Average spot jet fuel price US dollars per gallon

• Monthly percentage change

2012

0 2011

-40 2010

1

2009

-20

2008

2

2007

0

2006

3

2005

20

2004

4

2003

40

2002

tween 1981 and 2004.

wnturn of 2008 andeconomic 2009,downturn the worst The global of 2008 and 2009 ce the Great dragged down arguablyDepression, the worst economic contraction since the Great depression, dragged down all modes tatistics for world seaports show that of transport. prompting Statistics for world seaports show that container 7% in 2009, containership handling fell 9.7 per cent in 2009, prompting conuce frequencies, and idle ships on a tainership lines to cut services, reduce frequencies me on record.

Air cargo traffic 12.5% and idle ships on a global scalefell for the first time on ear-end record.

2009,Airthe worst cargo trafficdecline fell 12.5 since per cent between year-end 2009, the worst decline since ansport mid-2008 age. Byand mid-2009, however, the beginning of the jet transport age. By mid-2009, uction began to perk up, nudging air however, worldwide industrial production began to very. Air perk cargo in cargo 2010traffic as world up, surged nudging air toward recovery. k depleted inventories.

Air cargo surged in 2010 as world industry moved to

1981

2001

affic fell 3.2% and 9.6%, respectively—the affic contracted in two consecutive years. tinues through the remainder of 2012, and 2012 will mark the second such rgo traffic has expanded only 3.7% per 01. Of greater concern, traffic has grown time that air cargo traffic contracted in two consecu2004—much slower than tive years.

The years 2011the and 6.7% 2012 mark the second aintainedsuch foroccurrence. the 23 years between World air cargo traffic has expanded only 3.7 cent pertraffic year onsince average2004 since 2001. Of wing of world airpercargo greater concern, traffic has grown only 2.0 per cent per to the global economic downturn of year since 2004—much slower than the 6.7 per cent g price ofhistorical fuel. growth trend maintained for the 23 years be-

• Average spot jet fuel price

profit challenges at passenger airlines have focused airline attention on opportunities to earn lower-hold 2011 air cargo growth byrevenue major represents market cargo revenue.

On average, cargo approximately 15 per cent of total air transport revenue, with some airlines earning nearly 40% of their revenue Worldfrom cargo. Declines in yield for cargo and passenger services reflect productivity gains, techniIntra-North America cal improvements, and intense competition. While Latin America–North America declining yield creates pricing pressure on all inLatin America–Europe dustry segments, it also helps stimulate growth for America lower shipping costs for the Europe–North industry by enabling the Intra-Europe consumer.

Middle East–Europe Averaged over the past two decades, freight yield has Africa–Europe declined 4.2% per year. The most recent decade sawAsia–North a slight yieldAmerica increase of 0.9% per year, compared to the 9.0 per cent Europe–Asia average annual decline recorded in the preceding decade.

Intra-Asia Freight yield diverged from the 20-year downSouth Asia–Europe ward trend between 2002 and 2008, increasing Domestic China approximately 4.1% per year during that 6-year period. Much of the increase is due to fuel and security surcharges that began to rise in 2003. In 2008, significant fuel surcharges imposed in response to the fuel crisis helped push yields up 15.4 per cent compared to 2007. Although the global economic downturn drove freight yields down 22.1 per cent Index yields rose steeply by 11.9 per cent when in 2009, 1989 = 1.0 cargo traffic rebounded in 2010. In 2011, total cargo 1.2capacity increased while demand stayed nearly flat, holding yield growth to slightly more than 1.0 1 per cent.

-0.9% -1.1% 1.1% 3.8% 3.4% 0.1% 2.3% -0.6% -5.0% -7.0% -1.9% 2.0% 2.8%

1

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y

Passenger yield • 1991–2011: -3.9%

lead story

growth detail The higher cost of shipping by air held world air cargoworld traffic growth to only 3.7% averaged over ll drive overall air cargo growth

the past 10 years—well below the historical trend.

Industry-wide freight yields are expected to return the historical as more world air to cargo traffic downward will growtrend 5.2% per efficient airplanes enter the market, helping to stimulate expressmarket traffic, will average 5.3% annual growth.

Freight yield • 1991–2011: -4.2%

2001–2011: +0.8%

2001–2011: +0.9%

World air cargo traffic will more than double over the next 20 years RTKs in billions

Ks. Air mail traffic will grow much more 800 History Forecast Freighter fleet 9% annual growth through 2031. Overall, 600 to the report, number airplanes in increaseAccording from 202.4 billionthe RTKs in of2011 the worldwide freighter fleet will increase by more rd of 204.2 billion RTKs) to 20 more than thanNearly 80% during the next years, as demand 60% of world air cargo trafficforisair carried400 1. cargo services more than doubles.

Freighter airplanes 3.7% growth per year on freighters d 200 are crucial to the overall health of the air cargo industhe world cargofreighters industry in average try.air Dedicated provide reliable capacity to domestic China andcarried intra-Asia World on freighters, 0 shippers ofRTKs general cargo, mail and expresspercentage packages, oand 6.9% and per cargoyear, that cannot be accommodated in passenger 2001 2006 2011 2016 2021 respectively. Latin 70 airplane lower holds.

Since 2001, rs America Average annual growth, 2011–2031 orth and with Europe willfreighter grow airplanes have carried on average just over 60 per cent of the • High 5.6% • Base 5.2% d average growth as will Middle 65 total airrate, world’s cargo traffic each year. e. The more mature North America About 1,300 of the 2,754 projected and freighter delivower and thus lower-than-average traffic to long-haul, intercontinental eries will replace retiring airplanes, with the remain60

e

.

der expanding the fleet to meet the requirements of projected traffic growth. Two-thirds of deliveries will 55 be freighter conversions, 60 per cent of which will be from standard-body passenger airplanes. Of the pro50935 new production airplane deliveries (valued jected at $2502001 billion 2011 US dollars), three-fourths 2003 2005about2007 2009 will be in the large freighter category. Continuing a trend of many years in the Asia Pacific region, allcargo and combination carriers will take the greatest number of large freighters, which are uniquely suited

Total airplanes

2026

2031 4,000

Low 4.5% •3,000

markets. 2,000 Express carrier networks will take the majority of medium wide body freighters, ideally sized to support high-yield, 1,000 Historical and forecast operations. air cargo Standard-body growth ratesfreighters will time-critical serve emerging regional and niche markets, as0 well as express markets.

2011

Historic

Forecast

Standard-body • <45 World air cargo 10 traffic growth detail years 20 years tonnes

International air 2001–2011 freight will drive overall world air 2011–2031 cargo growth through 2031.

Over the next 20 years, World 3.7% 5.2% world air cargo traffic will grow 5.2% per year. Air Intra-North America -1.5% 2.3% Latin America–North 1.8% traffic, will average 5.6% 5.3% freight,America including express Latin America–Europe 3.2% in RTKs. Air 5.3% annual growth, measured mail traffic Europe–North America 1.5% 3.5% will grow much more slowly, averaging only 0.9% Fleet grows more than 80%, shifts toward Intra-Europe 1.6% 2.4% annual growth through 2031.

Overall, world air large freighters Middle East–Europe 9.5% 5.7% cargo traffic will increase from 202.4 billion Revenue Africa–Europe Ton Kilometer (RTKs) 3.2% 4.8% in 2011 (down from its 2010 Asia–North America 5.8% 1,738 freighters 3,198 freighters record of 204.2 billion4.3% RTKs) to more than 558.3 bilEurope–Asia 6.2% 5.7% 2031 lion RTKs in 2031.

Intra-Asia 4.5% 6.9% Asia will continue to lead the world air cargo inSouth Asia–Europe 6.1% 5.8% 2011 38% 36% dustry in average annual growth rates, with domestic Domestic China 10.9% 8.0% China and intra-Asia markets expanding 8.0% and 36% 31% 6.9% per year, respectively. Latin America markets with North America and with Europe will grow at approximately the world average growth rate, as will Middle East markets with Europe. The more mature North America and Europe markets reflect slower and World containership traffic has grown rapidly 33% 26% thus lower-than-average traffic growth rates.

(>80 tonnes) • Large widebody (40 to 80 tonnes) • Medium • Standard-body (<45 tonnes)

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America RTKs • Europe to NorthYou can access the original report at http://www.boeing. in billions Europe • North America tocom/assets/pdf/commercial/cargo/wacf.pdf 8,000 • Asia to Europe • Europe to Asia • North America to Asia

2009

lead story

E-Freight

Taking The Paper Out Of Air Cargo

E-Freight cargo initiated by IATA not only solve the documention process but also helps to move cargo cheaper and faster.

A

ir cargo transports goods worth in excess of $6.4 trillion on an annual basis. This is approximately 35% of world trade by value. The sector itself generates nearly $70 billion every year.

However, the use of technology did not keep pace with the changing times. The Air Cargo industry typically generates around 30 documents for a single shipment.

The documents include customs forms, transportation docs like airway bills and flight manifests, as well as commercial documents such as invoices, packing lists and certificates of origin. In addition, up to seven enti-

ties like shippers, freight forwarders, ground-handling agents, airlines, customs brokers, customs agents and other government authorities are involved in the shipping process. At each step of the process, the number of documents and the complexity of the documents expand, thereby increasing the cost and the chances of human errors.

On the other hand, the passenger airlines industry did save billions when they moved to e-ticketing. The success of the e-ticketing initiative led to the movement towards e-freight. Like the e-ticket, the aim of the eSCMPr

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electronic messaging, which is more accurate, more reliable, and less expensive. The e-freight initiative waslead launched story in 2006 as a part of the IATA’s effort to simplify the Business (StB) initiative. Though it was initiated by IATA, e-freight has gained industry-wide support, including that of carriers, freight forwarders, ground handlers, shippers, and customs brokers and authorities. documents Scope: Scopee-freight e-Freight Ddocument

freight initiative is to “take the paper out of air cargo” supply chain operations and replace it with electronic messaging, which is more accurate, more reliable, and less expensive. The e-freight initiative was launched in 2006 as a part of the IATA’s effort to simplify the Business (StB) initiative. Though it was initiated by IATA, e-freight has gained industry-wide support, including that of carriers, freight forwarders, ground handlers, shippers, and customs brokers and authorities. e-freight is about building a paper free air cargo supply chain. It includes a set of business processes and standards that allows players to replace paper documents from the shipping process of air cargo with electronic exchange of data in a seamless fashion, throughout the chain - from origin to destination. Documents are replaced with the exchange of electronic data. The e-freight initiative identifies the locations where those electronic standards can be used. The e-freight initiative drives adoption of those standards by industry participants via targeted change management initiatives. e-Doc standards used as part of e-freight rely on use of EDI or scanned images. efreight uses the existing air cargo industry messaging infrastructure. Participants can use in-house technology to connect to their partners or use tools provided by their partners or 3rd party providers.

The e-freight initiative rests on three pillars. The Global Air Cargo Advisory Group has defined these pillars as: Pillar I: Engaging regulators and governments worldwide to create an ‘e-freight route network’ with fully electronic customs procedures and where regulations support paperless shipments.

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Pillar II: Working collaboratively within the cargo supply chain to digitize the core industry transport documents, starting with the air waybill Pillar III: Developing a plan to digitize the commercial and special cargo documents typically accompanying airfreight today, in or outside of the ‘Cargo pouch’ The GACAG has adopted an ambitious timeline for adopting e-freight: The timelines for currently adopted are to have 80 per cent of locations on efreight route network and a paperless airport to airport environment by 2015. And more ambitiously, to digitize commercial and special cargo documents by 2013. The goals for 2013 include: n Increase the e-freight route network coverage from 33 to 45 per cent of the global trade lanes. n Pilot e-freight in at least two of the BRIC countries (Brazil, Russia, India, China). n Grow global e-AWB penetration to 20 per cent.

Benefits of e-freight

n Data accuracy and transparency throughout the shipment life cycle n Reduction of paper usage - no air waybill & copies of documents n Speed-up service: a reduced cycle time of an average of 24 hours n Improve reliability and accuracy: one-time electronic data entry at point of origin n Enabling customs & other stakeholders to work with advanced information to facilitate expedient import clearance & control n Greening the industry - reduces carbon footprint n Enables trade facilitation

22

lead story The four pillars of global trade, the BRIC economies are the laggards in e-freight implementation.

While Russia and China are making some efforts, India and Brazil are still to take any major steps.

e-Freight in India It is a sad reflection of our abilities that a country which is considered a global leader in IT lags behind in e-freight initiatives. The Indian customs have been slow to respond to the e-freight initiative. A major obstacle to e-freight in India is the structure of the freight forwarding business. According to Joshua Ebenezer, National Head of Customs & Trade Compliance Schenker India Pvt Ltd, the freight forwarding community depends on the complex and sometimes quirky nature of documentation for their continuation in business. The business is based in part on the ability to help their customers navigate the complex, paper-based documentary procedures involved in shipping cargo. Unless the freight forwarders move to a more value added services as the mainstay of their business, they will not switch to e-freight.

A simple area for introducing digitization is in the vast archives that freight forwarders are required to maintain. According to an analysis by IATA, freight forwarders can reduce document processing time, eliminate paper, ink and printer maintenance costs, and free up office space, saving between US$ 1 and US$ 2.40 per shipment. Not to mention the increased customer service quality.

Another issue that faces freight forwarders, espe-

cially when their margins are under pressure, is the additional investments they need to make for e-archiving. There is simply no scope for further investments.

Again, a study by IATA estimates that a forwarder that handles 1,000 shipments per month can break even on its investment in electronic archiving technology in just two years.

Who will take the first step?

Getting all parties in the air cargo transport supply chain onto the e-freight initiative presents a classic dilemma: A large part of the benefits of e-freight will only accrue to an individual entity only when everyone else along the chain automates simultaneously.

Using an electronic system for one part of the process does not make sense if other parts of the chain remain manual. According to an IATA estimate that if the e-freight initiative is fully implemented, the industry stands to save USD 12 Billion. But the problem is that this gain is not shared equally by the players. This causes some players to soft pedal the issue.

The biggest gainers in the e-freight implementation are the shippers, who stand to gain from the reduced inventory buffers and lower working capital. However, they cannot influence the adoption of e-freight as are a fragmented group of air transport users, and their involvement in freight and customs documentation is minimal. The bigger role in determining how â&#x20AC;&#x201C; or whether â&#x20AC;&#x201C; e-freight is implemented will be played by air carriers and freight forwarders. And this is the group that is least benefitted from e-freight.

www.scmp.in ...think supply chain Industry Portal for the Supply Chain Professional SCMPr April 2013 23

Lead story

In Search Of Innovation

Using Technology for Efficiency Air Cargo industry needs to find a golden mean, where it can grow in spite of many challenges it is facing.

T

he air Cargo industry has been a poor adopter of technology. May be due to the constant pressures on margin and the hyper competitive world we live in. We cannot wish away competition nor can the industry resist the pressures on margin. The industry needs to find a golden mean, where it can grow in spite of these challenges. One of the greatest enablers of profitability for any industry is the use of information technology. There are a number of measures that are being taken by the industry to promote the use of technology in the air cargo sector. E-freight is one such initiative, where the industry is planning a migration to a paperless environment. Apart from this measure, we take a look at the other technology initiatives for air cargo industry â&#x20AC;&#x201C; either to promote efficiency or to increase customer service and satisfaction.

definitely seems to think so. They choose this application as a winner in a contest they held.

Shipment configuration App Every shipment will have a few parameters that will help the forwarder to plan the movement of cargo.

Today, the shipper has to fill it in a form or prepare a document that will accompany the other documents and hope the forwarder will take note and act accordingly. With the avxailable technology, it is possible to create a simple application which will allow the shipper to specify the important parameters like

F2F â&#x20AC;&#x201C; Face to Face One of the major irritants in shipment planning is the lack of direct contact between the freight forwarder and the shipper. Instructions are either exchanged over emails or if important over a telephone call. However, with the availability of 3G and mobile phones, it should be possible for the shipper and the freight forwarder to carry on a face-to-face discussion. This definitely will add a personal touch to customer service and let the shipper see whom he is dealing with. An interesting application of this would be for special cargo. The shipper rather than describing cargo, could simply point their camera phone at it, showing the freight forwarder any angle or special detail they may need to see to be able to help book the best service. Freight forwarders may then be able to offer solutions or considerations the customer had not thought of. Will this help? Lufthansa Cargo 24 SCMPr

April 2013

Cargo Data Mining

A value added service that will help the shipper is advisory services from the forwarder based

lead story specified arrival time, temperature for transit, type of packaging, shipping costs variability etc. If during the transportation planning it becomes clear, that the important properties can only be met, if one or several preferred but less important properties are altered, the application can propose a transportation alternative to the customer letting him decide, whether he accepts it. Again an innovation from Lufthansa!

Cargo Data Mining A value added service that will help the shipper is advisory services from the forwarder based on the available data. One easy step would be for the freight forwarder to use the information content of the customer’s shipments–in terms of size, volume, value, consignee and route. Mining this data will help the freight forwarder to offer advice to the shipper that will help them reduce costs or improve delivery time.

The advisory can be as simple a “Use air bags to protect items inside the boxes rather than paper stuffing” or “Consider sending your cargo through this hub instead.” If shipments are packaged and planned more efficiently, the process of moving them is easier for both the client and for LC. It would be a great way to increase customer loyalty.

Cargo Info Center As air cargo becomes increasingly a commodity, the shipper will look for value propositions from the freight forwarder. One use of technology is for the freight forwarder to become an information aggregator and use this to deliver value adds. As on date the information that the freight forwarder has is the intimate knowledge on customs practices. But the recent steps by the Indian customs where they have placed all relevant information on their portal, renders this knowledge fairly redundant. One interesting application of the Info Center is to create a database where structured, unstructured and semi structured data can be stored, managed and queried. This data can be used for pricing, tracking, up-selling.

RFID Applications Radio-frequency identification (RFID) is the wireless non-contact use of radio-frequency electromagnetic fields to transfer data, for the purposes of automatically identifying and tracking tags attached to objects. How could an airline or a Ground Handling Agent use RFID in their operations?

One use of RFID is that the shipper, the forwarder and the air line can track the position of a cargo or pallet at any point in time. The airlines use a pallet also called a unit load device for loading cargo. These

pallets have to be tracked and accounted for by the airline or the GHA, as substantial investments go into them. The current practice is to manually reconcile them. This is an apt case for the use of RFID in airlines. The only hitch is that all airports have to be equipped with RFID readers that will collect the information and pass it on to the airlines. All said and done a hugely expensive proposal. This makes sense only if the cost of replacement is higher than the cost for the RFID infrastructure. An alternate solution could be for Time Defined cargo–the airline can track these priority shipments throughout their journey.

A better use would be for special shipments like diamonds and jewelry where the value is high and tracking these shipments is crucial. Or in inventory management–where the RFID tags can be used to locate information on the contents whenever they are moved or when Hazardous Goods are transported and

Interesting application of the Info Center is to create a database where structured, unstructured and semi structured data can be stored, managed and queried. stored. These RFID data can be integrated with the tracking system of the airlines and freight forwarders so that customers can get real time updates.

Cargo Screening Traditional X-ray systems at airports only detect abnormalities–not explosives. Along with wasting time, this can lead to “potentially dangerous” manual inspections of airfreight, causing delays and expenses. What the industry lacks, approved, cost-efficient and cargo-specific technology that can screen bulk freight at the piece level–technologies which will allow security agents to automatically screen mixed-bulk pallets without having to remove individual packages. One such technology is materials discrimination - this allows systems to analyze the chemical makeup of freight, which tells cargo agents whether the content of the container matches up with the manifest–allowing them to pick out specific narcotics or threats. Another development that will be of interest is the integration of data management and screening technology. Such integration will allow for a layered approach to air cargo screening.

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Lead story

Africa Rising Indian industry is aggressively seeking for business opportunities in Africa. For India’s share of Africa’s global trade to increase, there is a need to push higher-end manufactures into African markets.

A

frica is the world’s second-largest continent with abundant reserves of natural resources, and plenty of untapped investment opportunities.

The continent is hence being hailed as the ‘New Frontier’. A decade ago, The Economist ran a cover with the title “Africa: The Hopeless Continent”. Today, this has been replaced by “Africa Rising”—a sure reflection of the changes that the continent has experienced over a decade. What has engineered Africa’s rise through difficult times? A lesser known fact is Africa’s prospects have changed radically over the past decade or so. Across the continent, economic growth rates (in per capita terms) have been positive since the late 1990s. Even though Africa’s economic growth rates still fall far short of Asia’s higher growth rates, the steady progress that most African countries have experienced has come as welcome news after decades of despair.

Indo-Africa trade has increased 20 fold over the past decade–from USD 3 billion in 2000 to USD 60 Bilt lion in 2011. The India–Africa trade is set to rise to t USD 100 Billion by 2014 -15. To attain this growth and sustain it over a longer period of time, all concerned, Indian and African governments and industry have to broaden the trade basket. The Current, IndiaAfrica bilateral trade is concentrated on commodities and low-end manufactures. Also, India’s two-way trade several African economies is way below potential. driven bywith continued Asian investment According to data available, India has been able to demand. driven bystep continued Asian investment up exports of manufactures like machinery and demand. transport equipment, petroleum products, paper and Asia air cargo market has increased 32% wood products, textiles, iron and steel, plastic and lice 2001.

Growth has has slowed in recent Asia air cargo increased noleum market products, rubber manufactured 32% products, agro ed2001. to theproducts, tremendous expansion in products. At ce Growth has slowed in recent chemicals and pharmaceutical ecade.

Air cargo are significantly thetremendous same timeflows India’s expansion import basket includes ed to the in petroleum, metallurgical goods, raw cotton, fruit, vegetables and seven times as much entering ecade.

Air cargo flowsair arecargo significantly preparations, chemicals, non-metallic mineral manuseven times as much air cargo entering factures precious stones, textile yarn, gold, nickel, and from Africa. betweenferro-alloys Africa and Asia grew at an India has emerged as Africa’s fourth largest trade rbetween year between 2001 and grew 2006.

Africaafter and atThe an and the US. partner, the Asia European Union, China or year 5.8%between between 2006and and 2011.

Capital 2001 2006.

The In 2011, India-Africa trade accounted for a mere 5.2 tractive industries (e.g., oil from Sudan per cent of Africa’s global trade.

Compare o 5.8% between 2006 and 2011. Capital this with China’s share of(e.g., 16.9 per cent. a) and growing demand for consumer tractive industries oil from Sudan Owing to the fast paced growth in Africa, ea)imported fromdemand China—will continue to the past and growing for consumer two to three years has witnessed a significant boost

e imported from China—will continue to

both directions machinery and 2013 26 SCMPrareMarch anufactured goods, and chemicals both directions are machinery and and

in air cargo traffic between Asia and Africa primarily driven by investment in African infrastructure. At the same time, global demand for Africa’s oil/gas resources, minerals, and other commodities has soared, generating more wealth in various parts of the African continent.

The result has been an increase in African consumer spending on imported goods from Asian countries.

What does this entail for the movement of cargo between India and Africa? Do we have the required capacity to handle this increased trade. Or will we see a large part of this trade be diverted to other countries and hubs. Some of the major imports from Africa are gold, diamonds, platinum, copper, manganese and uranium.

Diamond, gold and platinum are high value commodities which require special handling.

The picture that is emerging is not so reassuring.

According to a report from Air Cargo Africa 2013, air cargo from Asia to Africa has seen double-digit growth in recent years. The report goes on to state ”The growth of exports from Asia towards Africa has been a reality for the past few years. Carriers remain confident that air cargo from Asia to Africa will continue to offer good prospects in the long-term, especially if the recent improved political stability seen in many African countries continues. Chinese investment in parts of Africa has also generated more project-type air cargo such as

Africa–Asia air trade has grown 32% per year Africa–Asia air trade has grown 32% per year Tonnes in thousands Tonnes 300 in thousands 300 200 200 100 100 0

2005

2007

Average annual growth, 2001 20032001–2011 2005

2007

0

2001

2003

Asia to Africa 33.4% • Average annual growth, 2001–2011 • Asia to Africa 33.4%

2009

2011

2009

2011

• Africa to Asia 25.6% • Africa to Asia 25.6%

Machinery and transport-related goods lead

%

lead story telecoms equipment. Demand for air cargo capacity between China and Africa has also provided opportunities for some carriers in the Middle East to exploit their geographical location and win transshipment traffic in the market. A number of major European carriers have also secured a share of the Asia-Africa air cargo market.

Rich in natural resources, Africa is emerging as the new destination for investment by the Air Cargo industry.”

A cursory look at the attention paid to Arica by the world’s airlines is an eye opener. Etihad has taken a stake in Air Seychelles to get a foothold in the Africa-Asia market. Turkish Airlines is bullish on Africa and is creating capacity there. United Airlines is creating capacity for US – Africa trade lane. India and Indian carriers seem to be absent from this action.

The African Challenge According to World Air Cargo Forecast, Africa–Asia airAfrica–Asia trade is driven by continued Asian air trade has grown 32%investment per year and African consumer demand. The developing Africa– Asia air cargo market has increased 32% per year on average Tonnessince 2001. Growth has slowed in recent years, in thousands however, compared to the tremendous expansion in the300 first half of the last decade. Air cargo flows are significantly imbalanced, with about seven times as much air200 cargo entering as leaving Africa.

Total air cargo tonnage between Africa and Asia grew at an average rate of 65 per cent per year between 2001 100 and 2006. The average rate declined to 5.8 per cent between 2006 and 2011. Capital investment in Afri0 can extractive industries (e.g., oil from Sudan and cop2001 2003 2005 2007 2009 2011 per from Zambia) and growing demand for consumer Average annual growth, 2001–2011 goods—especially those imported from China—will 33.4% • Asia to Africa • Africa to Asia 25.6% continue to drive imports to Asia.

Major commodities for both directions are machinery and transport equipment, manufactured goods, and Machinery and transport-related goods lead Africa air trade with Asia Asia to Africa 207,000 tonnes

Africa to Asia 30,000 tonnes

5.2% 0.5% 38.6%

8.0% 1.3% 55.7%

rs, ar s

48.8%

10.0%

31.9%

• Machinery and transport equipment • Manufactured goods • Chemicals and related products

• Food and live animals • Other

Trade Imbalance in the African skies for air-freight n West

Africa is strong in imports of oil and gas equipment but marginally weak in exports.

n Southern

Africa is strong in imports of all types of cargo and specialized re-export of automotive parts and components.

n East

Africa is weak in imports but strong in perishable exports into Europe.

n Europe

is the largest trade partner with Africa (66%) with perishable imports and exports of oil and gas equipment, mining cargo, telecom cargoes, relief shipments, automotive spares and industrial cargoes.

n Middle

East (13%) is an important hub for consolidations from China & South East Asia and imports meat, vegetables and fruits.

n Regional

Intra-African network exists within the hubs of South Africa, Egypt, Ethiopia and Kenya with lack of inter-connectivity between hubs.

n

I ntra-African airfreight is based on one-way load factors with low yields due to the presence of belly-capacity and is based on network traffic.

chemicals and related products. Food and live animals account for about 10 per cent of African exports to Asia.

Estimation of the size of the Africa–Asia market is complicated by two shipping practices. First, a large portion of Asia-to-Africa freight is transported to the Middle East by containership before being shipped by air to its final destination in Africa. While such “sea-air” cargo transport combines the advantages of low-cost containership transport with the reliability of air cargo for shippers, it can cause a significant percentage of Asian air cargo to appear to originate from the Middle East. Second, small-scale importers carry significant amounts of Asian goods into Africa in their baggage.

While Africa does provide quite a few opportunities for trade lane, it presents quite a number of challenges.

A major challenge of the Africa air cargo industry is the trade imbalance. Trade imbalance exists between China–Africa, India–Africa and Middle East–Africa with air imports exceeding air exports. African airimports are dependent on high commodity prices especially for the oil and mining sector while air-exports of perishables are dependent on the economies of the importing countries. (E.g Euro zone crisis). Moreover, high Fuel Prices combined with overcapacity to and from Africa is driving down yields and profitability.

Market Barriers exist in many African countries such as traffic rights, royalties, cargo taxes, customs and excessive handling charges are some of the biggest challenges in Africa. Airport Infrastructure needs to be upgraded for handling cargo. Indian air cargo industry cannot afford to miss the bus. Time we saw some investments into the “New Frontier”.

t

st.

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Lead story

Freight Forwarding...

Long way to go

With very little assest investment, the entry barriers for Freight forwarding business are low and the competitive pressure never eases and are caught up in amidst rivalry.

I

nternational freight forwarders (IFFs) are the key logistical intermediaries in international trade. They provide a large numbers of functions that facilitate the movement of cross border segments like paying freight charges, tracing and expediting shipments and making routing recommendations for shippers.

The air-cargo business in Asia is expected to expand rapidly in the future and with the rise of Asian markets, which is forecasted by APEC 2015, the growth is expected to increase from 7.5 per cent to over 15.4 per cent in the next few years. Growth will attract more players and hence IFFs must change in order to survive tremendous volatility through regulatory changes, technological advances, competitive pressures and new entrants. Though this is a low capital intensive industry, it is a fragmented industry and hence IFFs must change and become more strategic in nature to create sustainable competitive advantage.

What should the Air cargo forwarding industry do? What are the capabilities that they need to build in order to be able to create a scalable, efficient and sustainable business? The study done by Cheng and Yeh on the core competencies and competitive advantage in air cargo forwarding for the Taiwan market provides a strategic

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scope for building capabilities which can sustain them in future, and provide a lesson for all air cargo industry in Asia.

According to them, the five factors that play an important role are : 1. A firmâ&#x20AC;&#x2122;s resources at a given time consisting of tangible and intangible assets that are tied to the firm permanently. Resources are the very essence of sustainable competitive advantage because a firmâ&#x20AC;&#x2122;s ability to gain and preserve its profitability depends on its ability to defend its advantageous position, which basically relies on its resources.

2. The firmâ&#x20AC;&#x2122;s capability is defined as the capacity of the firm to better allocate and use resources to gain economic rent. The core competence of the firm is the firmspecific knowledge system which exerts competitive advantage, which may pertain to a knowledge base, a technological system and a managerial system. These capabilities will have a positive effect on the Sustainable Competitive Advantage of air-cargo forwarders.

3. The dynamic market and pressure from competitors force air-cargo forwarders to reconsider their strategies for examining their strength and weaknesses. Aircargo forwarders need to resort to strategic alliances, which is just a simple agreement of mutual assistance to create economies

of scale and which can help them identify positional advantages through strategic alliances. This will help them gain protection from the forces of competition.

4. Air-cargo forwarders are important intermediaries in global transportation.

Expanding into additional national markets can help these players accumulate professional knowledge in providing global services. As the scale of the enterprise grows, fixed costs are spread across more units, creating more incremental value at every stage. Thus by expanding the scope of corporates, they can sustain the business model and become more sustainable.

5. Finally, air-cargo forwarders attain sustainable competitive advantage with the help of continuous service innovation.

Innovation is the process of applying new ideas to satisfy customers, possibly converting new knowledge into new services.

This becomes the foundation for enduring customer loyalty and sustainability of the business model.

Air-cargo forwarders in India have a long way to go and these can be effective guidelines for their future sustainability.

Rakesh Singh Director, Durgadevi Saraf Institute of Management Studies, Chairman ISCM.

Pharma Supply Chain Summit 2013 Engage and get exposure to the strategies adopted by Supply Chain Professionals and industry experts.

Paper presentations, panel discussions, freewheeling sections, debates etc.

A high networking opportunity to interact with the decision makers.

Summit Focus + + + + + +

Strategies for Optimization Supply Chain Visibility Drivers in the Pharmaceutical Supply Chain Strategic and Design Issues In Pharma Supply Chain Managing Temperature Controlled Supply Chain Selecting a Supply Chain Partner Date

14th June 2013 Venue

The Lalit, Mumbai Timing

9.00 am to 5.00 pm For delegate registration please write to: Rashid.iqbal@scmp.in or call us on 022- 60020121/ 122

Organised by

Knowledge Partner

Media Partner

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Supply Chain Management Professional

n analysis n practice n knowledge n survey n human resource March 2013

Vol. 1窶年o.2 `150

Salary Survey Report 2013 Page...42

Academic Advocacy

Impact

of Sustainable Manufacturing Practices The study was undertaken to asscertain the positive relation ship between consumers attitude towards enviornmental issues.

Rakesh Singh, Director, Durgadevi Saraf Institute of Management Studies, Chairman ISCM, Vaidya Jayaraman, Department of Management, School of Business Administration, University of Miami and Ajay Anandnarayan, Business Consultant, Cognizant Business Consulting, India.

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Academic Advocacy

A

firm’s ability to measure, monitor and improve environmental performance is becoming increasingly important to the management and personnel involved in implementation and execution of environmental programs and processes. The consequences of not managing a firm’s environmental practices may result in waste, pollution and other related problems.

Over the past couple of decades, there has been a heightened awareness of environmental issues by governments, policy makers, advocacy groups, business and public.

All these stakeholders need credible information on environmental activities of firms to make decisions.

This growing trend appears to reflect changes in market systems in which increased regulatory forces and public environmental concern have the potential to influence operational processes of the firm. The argument that if firms adopt an environmental perspective, it can help them improve their performance has been made by several researchers. Porter and van der Linde (1995) provide several examples of how environmental conditions had encouraged firms to allocate resources more effectively and efficiently and as a result become productive.

The research paper is organized in two major sections. In Section 2 the authors present a literature review and background for their paper. In Section 3 they describe the first phase of research (field research) where they studied the green manufacturing techniques in place in two world-class, ISO 14001-certified paint manufacturing firms in India to ascertain whether the benefits that these firms enjoy were due to the proactive stance the two firms have taken with respect to environmental green supply chain management.

Findings Company A The first site visit was undertaken in October 2008 to Company A, a world-class paint manufacturing unit in India, and data on the outcome of their sustainability initiatives was collated during this time.

Company A, a leading manufacturer of industrial paints, took a proactive stance to understand the need for improving and protecting the environment. The firm has put together a system to not only comply with the legal requirements set in place in India, but also go beyond compliance to ensure that the manufacturing plants are located in a safe environment. The company’s four paint and two chemical plants have all been awarded the ISO 14001 certification for environmental management standards. For the quarter that ended on consolidation of the accounts of various subsidiaries and joint ventures, the net profit of the company was around Rs. 90 crores (1 crore rupee = $200,000).

In the process of improving environmental performance, the company has a very innovative methodology of converting paint sludge (a hazardous waste) into primer by a unique remanufacturing process. Industrial painting by spraying generated waste due to offspray. This paint when washed with running/circulated water led to the generation of paint sludge, which is highly hazardous in nature and severely pollutes water bodies if not disposed of cleanly. It has been ascertained that, on an average, paint guns generate 40 to 50 per cent sludge due to excesses and that the total amount of paint sludge that was generated in India in 2007 was close to 46,000 kilolitres, which is approximately 35 per cent of the industrial paint manufactured in the country. The only available way to dispose of this sludge was through incineration after due

treatment. This is a costly procedure and consumes a lot of natural resources, including fuels, and thus pollutes the atmosphere further. As a solution to this problem, Firm A developed an innovative remanufacturing and recycling technology to convert this sludge into usable paint primer. The process is an ecofriendly safe process wherein there is minimal generation of waste water and the process would result in only 2–5% remnant waste from the total primer that is produced.

The primer thus manufactured met all the industry standards in terms of viscosity, adhesion, impact resistance and water resistance. The company identified a total of 78 types of waste from the paint manufacturing facilities, of which 18 were designated as being hazardous. The company followed a common format for all the plants that details the disposal options for each of these wastes. All the hazardous wastes are stored in a scrap yard where the detoxification equipment is also installed. The hazardous containers are located in three zones for storing dirty waste (red zone), cleaned but waiting for approval and detoxification (orange zone) and containers that have already been approved for disposal (green zone). All containers are detoxified with caustic solution and solvents. In addition, the hazardous waste containers from packing operations are crushed in hydraulic presses and detoxified by incineration and then disposed to authorised scrap contractors.

Company B The second site visit was undertaken to Firm B, a world leader in the commercial paints section. The firm is also a leader in the Indian paint industry for its strict adherence to environmental standards and stringently monitors its hazardous waste levels. Firm B’s supply chain is truly integrated. Its suppliers have SCMPr

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Academic Advocacy adopted various approaches to improve the sustainability of the paint and have developed new additive formulations and technologies that help minimise the environmental impact of final paint formulations.

Other innovations include developing resin systems with unique properties and many others are focused on reducing waste production and energy consumption. The firm has also invested in a new water-based acrylic emulsion polymer plant.

This facility has a zero discharge policy and operates under the firmâ&#x20AC;&#x2122;s twenty-first century sustainable manufacturing program. In this plant, all waste water is recycled so that only residual solids from the waste water go to landfill. Reduction of waste is a key aspect in addition to reduction of emissions to the air. This ISO 14001-certified company uses an ultra-filtration system to recapture waste latex for use in other lowerend products that do not require the highest purity levels. For the quarter that ended the net profit of the company was around `55 crores(1 crore rupees=$200,000).

For Firm B, one of its suppliers is promoting the use of recyclable plastic containers for their products.

The supplier has developed a closedloop container that does not rust, offers better sealability and is made of 100 per cent recycled materials.

By implementing a closed-loop container system, the goal of Firm B is to keep man-made materials out of landfills and at the same time reduce the consumption of other resources. Company B is at the point of forming partnerships with its key customers in order to establish collection sites where they can use small footprint shredders that can grind up the buckets at the end of their useful life. The company is also dedicated to sustainability and environmental issues and will eventually ensure that closed-loop recycling is 32 SCMPr

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a long-term opportunity with the potential to achieve significant cost savings while benefitting the environment. Additionally, an additional goal of Firm B is to educate their end consumers to relate to the idea of recycling and view such programs in a positive manner.

Both firms are committed to and have taken a proactive stance on environmental management and resource conservation as key drivers of efficiency and productivity. They follow a strategy of waste minimisation through waste reduction at source and recycle waste in an optimal fashion. Additionally, both firms have implemented both product- and process-based environmentally conscious practices. By implementing pneumatic conveying systems for raw materials and

Conclusion An view adopting an environmental perspective on operations can lead to improved operations has become commonplace over the past decade. Any operational system that has minimised inefficiencies is also more environmentally sustainable. In the first phase of the research, the authors conducted a field research of the green manufacturing techniques in place in two world-class, ISO 14001-certified paint manufacturing firms in India. This study was undertaken to ascertain the cost benefits that these firms enjoy due to green manufacturing and recycling. Based on this study, a conceptual framework was proposed to investigate any relationship between the consumerâ&#x20AC;&#x2122;s attitude towards the environment

There has to be a conscious focus on monitoring and managing the risk profile of the business. superior cleaning systems, they have been able to minimise waste generation. Both firms have implemented rain water harvesting schemes, drip irrigation systems and ground water recharging strategies across their plants and this has lead to reduced water consumption. Closed-loop recycling schemes are now in place to minimise waste generation. A periodic waste disposal audit in terms of reduction of the cost of waste and energy audits to save on energy at both firms indicate a profitable trend. By conducting net present value analyses and bottom line benefits at these two paint manufacturing firms over the last five years, there is a strong indication of a significant impact of EMS and waste management techniques on the bottom line performance and revenue growth at these two firms.

and the perceived image of a company that was environmentally conscious. Subsequently, a survey was administered to understand the impact of green marketing on the decision of consumers to buy paint manufactured by a firm that stringently regulates its hazardous waste. Results indicate that there is a strong correlation between the environmental concern of the survey respondent and the perception that the respondent forms of the firm that has implemented green manufacturing techniques. There is also a strong correlation between the decision to buy a green product and the respondentâ&#x20AC;&#x2122;s concern for the environment as well as the perception formed of the firm.

Further research is required to substantiate the cost benefits of green manufacturing.

n practice

n logistics

n knowledge

n human resource

n white paper

Hitching Transportation to the Asian Growth Engine As Asian companies continue to drive economic growth both regionally and globally, they must not overlook transportation planning as a critical component of the supply chains that facilitate that growth.

H

Dr. Ioannis N. Lagoudis Director of Applied Research, Malaysia Institute for Supply Chain Innovation.

ow can freight transportation add value to modern supply chains when globally–and especially in Asia–the function tends to be only loosely linked to shippers’ supply chain strategies?

In Asia, companies are often divided into multiple business units with each unit operating independently. This fragmentation makes it difficult to incorporate transportation into the company’s operations.

Companies in the west have started to realize that transportation has a key role to play in the design of supply chains. They understand that including factors relating to the movement of goods in the initial design stages can significantly improve supply chain efficiency.

Following are the three examples of how companies are integrating transportation into their supply chain strategy.

Volvo Cars Volvo Transport is the distribution subsidiary of the Gothenburg, Sweden based car

manufacturer Volvo Group. The United States is a major market for Volvo cars, and in the 1990s the manufacturer shipped vehicles from Gothenburg to the US via direct ocean services to American ports and road/ rail links to companies’ showrooms. Overall transit time was 30 days to the US East Coast and 36 days to the West Coast.

At any given time Volvo had some $500 million worth of vehicles in transit. The high value of this inventory and other factors such as the risk of cargo damage and late delivery persuaded the company to look at other transportation options.

Two alternative configurations were considered and used. A high-speed feeder service between Gothenburg, Zeebrugge, Belgium, and ports in the US, reduced door-to-door transit time from to 8 to 10 days. The second alternative route was a high-speed direct service from Gothenburg to the US that cut lead times to four days. Sea transportation is more expensive in both cases, but the extra cost is offset by inventory savings of 60 per cent to 85per cent as well as shorter, SCMPr

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transportation

more reliable delivery times, and less cargo loss or damage.

Motorola-UPS In the late 1980s and early 1990s Motorola, the semiconductor company, set itself a target of 168 hours delivery lead time to its customers. In other words, from the time an order was received by Motorola it should be delivered to its customers within 7 days.

Motorola had factories in seven locations in Asia (Japan, Philippines, Malaysia, HongKong, Taiwan, South Korea and China) and downstream plants in USA, Canada and Europe. Even though Motorola had managed to shrink the production cycle to 4 days, transportation to the USA was around 4.6 days.

At the time Motorola was using a number of transportation companies based on their availability and price, and as a result, it experienced delivery delays and cargo damage.

The company decided to partner with UPS and integrate the logistics services provider into its supply chain design. The strategic partnership delivered a number of improvements including almost $20 million in savings and a 98.4% on-time delivery rate.

HP-Cosco

Demographic changes and political developments, particularly in Asia, and increase in transportation costs stemming from rising fuel prices will require new supply chain designs.

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Hewlett-Packard (HP) operated a European hub in the Dutch port of Rotterdam for distributing product to Central and Eastern Europe. Demand changes coupled with the introduction by ocean carriers of slow steaming resulted in longer transit times.

And although freight rates declined, slow steaming also increased logistics and inventory costs.

In response, HP entered into an agreement with ocean carrier COSCO to relocate its European hub to Piraeus, Greece, in early 2013. The new hub will distribute product to Central Europe, the Middle East, North Africa, the Mediterranean region, and the former Soviet republics. An intermodal corridor will be created for shipping containers from Piraeus to the North. The new configuration is designed to take advantage of

the slow-steaming era and will speed up product delivery.

Other carriers in the rail, maritime, truck and air modes are engaged in similar efforts to involve transportation in the supply chain design process. There are ongoing challenges in the form of unexpected disruptions such as the recent labor actions on the US East and West coasts. Also, the industry must continuously reinvent itself to remain competitive in the many markets it serves, and to stay ahead of new regulations and operational issues such as rising fuel costs, etc.

But these challenges are an intrinsic part of the freight business. In future, the transportation industry will create value and deliver innovations by marrying its services with the different business models of its customers and the many categories of products that it moves.

Demographic changes and political developments, particularly in Asia, and increases in transportation costs stemming from rising fuel prices, will require new supply chain designs. In addition, over the next 15 years some 1.8 billion people are expected to enter the global consuming classes. Worldwide consumption is forecast to nearly double to $64 trillion in this time, with half of the extra buying power residing in emerging markets.

Asia will require supply chains capable of supporting these markets efficiently and responsively, and transportation must be part of the regionâ&#x20AC;&#x2122;s response. This is already happening. Alternative routes that connect Asia with Europe are being tested. An example is a new 11,000 km railway connection between China and Germany that crosses Kazakhstan, Russia, Belarus and Poland in just 18 days. The Arctic route that links Asia with Europe and North America is another example.

As Asian companies continue to drive economic growth both regionally and globally, they must not overlook transportation planning as a critical component of the supply chains that facilitate that growth.

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n practice

n logistics

n knowledge

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n white paper

Aligning Manufacturing to Customer Needs Suppliers should develop manufacturing and supply chain strategies to deliver products well within the customer’s tolerance time to fully exploit market opportunities.

W

Prabhakar Mahadevan Regional Director, India, Goldratt Consulting India Pvt. Ltd.

ith reliability in supply performance shooting up due to higher on time performance and with shortened lead times due to the TOC based system, it is now viable to maintain high availability of needed parts in the replacement market & to provide high reliability to OE market. This article illustrates different market needs can be accomplished by using TOC principles.

Recently we met with an autocomponent manufacturing company and were invited to analyse their business reality in order to improve their financial performance. While analysing their reality, we understood that the company caters to the replacement market besides supplying components to the original equipment manufacturers (OE’s). As a process, while planning for the forthcoming month’s capacity the company typically accumulates the forecasted OE demand (delivery schedules) that it has received from its customers, and assigns the rest of the capacity to cater to its replacement market requirements. We further understood that the company has a track record of maintaining a delivery performance (DDP) of close to 90 per cent to its OE customers.

It is apparent that the company is serving two different markets – as a supplier supplying parts to the OEs and simultaneously distributing spare parts to the replacement market. Upon further evaluation, it was clear that the company assigns higher priority to automotive customers (OE’s) relative to the replacement market when it comes to fulfilling the demand. The sales team further revealed that their OE customers were quite unhappy about very low spares availability in the replacement market as well as lower on the supply performance (DDP).

The needs of the two market segments seem distinctively different; The OE customers are willing to provide an advanced intimation for the supply of their SKU’s (and therefore willing to wait for a reasonable time to fulfill their order) but need high reliability from their suppliers, whereas the replacement market customers need instant availability of needed parts in the replacement channel. It seems that as the needs of different segments are differing, they have to be dealt with differently, and this mandates different manufacturing and supply chain strategies that would enable the company to fulfill the above valid needs of the respective market segments.

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concept

Understanding customer’s tolerance time The above automotive industry example can also be generalised across several industry verticals. Take for instance a customer who walks into a store to buy consumer products like soap, shampoo, bread etc. He/ she expects to see the product on the shelf almost instantly whereas a customer, who wishes to buy a car, will be willing to wait for few days/weeks to receive a car of his/her choice (colour/model/other configuration).

Based on the above examples, it seems that customer’s across market segments have an intrinsic ‘tolerance time’ – a time that he/ she is willing to wait to avail the relevant product/services. If suppliers (across the value chain) do not pay attention and fail to cater their products/services within this ‘tolerance time’ of the customer, there is a big risk that the customers may consider any available alternate product, thereby resulting in suppliers losing the business opportunity, along with market share and profit growth opportunities.

Appropriate manufacturing strategies

In order to reduce the production lead time and improve on time completion of orders to customers, there must be smooth flow of products in the shop floor.

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In majority of production environments, the manufacturer typically takes about 4 to 8 weeks to process a given custom order. The sum total of all processing times (by machines or by workers) for a given order can be technically termed as the ‘touch time’ to fulfill the order. In most situations, it can be observed that the total touch time to manufacture a given order is always a fraction (varies between 5 to 30 per cent) of the overall supply lead time. E.g. In an airport, for a passenger from entry till he reaches to the departure gate it typically takes between 20 to 40 minutes, however the actual touch time, the time he/she need to spend to get the boarding pass and pass through security check is normally just few minutes, rest of the time he/she spends waiting in the queue. Similarly, in majority of production environments for any given customer order, although the touch time is a small fraction of the overall lead time, the order spends

significant amount of duration in waiting (in front of resources, waiting for decisions, waiting for matching parts etc.). Therefore, the flow of the order is impeded at several points in production. In order to improve the situation, companies tend to release customer orders much earlier (than normal) into the shop floor for processing. Instead of improving the situation, the above action worsens it by causing long queues of orders in-front of work centres, thereby causing accumulation of work in process inventory, impeding flow within the shop floor, elongating the lead time and thus resulting in low supply performance.

TOC philosophy Intuitively it is convincing that in order to reduce the production lead time and improve on time completion of orders to customers, there must be smooth flow of products in the shop floor. In the current way of managing the supply chain (including production) there seems to be an (erroneous) assumption that requires introspection. The assumption that ‘in order to complete orders at the earliest and accomplish better on time performance, the processing of the order must start as early as possible’ seems to be damaging. Counter intuitively, the application of Theory of Constraints (TOC) philosophy (invented

by Dr Goldratt) to the production environment focuses on causing smooth flow in production by minimising quantum of work released onto the shopfloor and operates on the following principles: In order to accomplish smooth flow within production, it is imperative to control the number of open orders (customer orders that requires processing within foreseeable future) within the shop floor. In order to implement the above said principle, it is required to design a process that controls (chokes) the release of work onto the shop floor and also condition that the rate of release of work is in alignment with the available capacity of the plant. The order needs to be released at a pre-defined time interval (called as time buffers) ahead of the committed due date to 36

concept the customer. This procedure would ensure that only relevant customer orders are allowed to be processed within the shop floor thereby controlling the overall quantum of work (WIP) within production. Due to controlled release of work, flow of work within the shop floor would substantially improve, as there are much shorter queues in front of work centres than before, thereby resulting in shorter production lead times (due to lesser waiting times). In addition, introducing a global priority system to manage the customer orders within the shop floor would further better the flow and improve on time supply performance. When flow is enabled in production, it Globally, and in India, several manufacturing is feasible to respond to cuscompanies have re-designed their operation

tomers with much more agility–reliability in supply performance shoots up (to satisfy B2B customers such as the OE’s) at the same time due to shortened lead times it is feasible to maintain high availability of needed parts for the replacement market.

Globally, and in India, several manufacturing companies have re-designed their operation strategies and have implemented the above concept resulting in significant improvement to their performance in terms of accomplishing 99 per cent DDP, reducing WIP & production lead times by 50 per cent. It is important to note that, implementation of these concepts does not warrant any change in the existing plant layout and therefore requires no further investment or efforts. TOC concepts being counter intuitive to implement, however mandates that the company pay due attention to the involvement and agreement from the key stake holders within the company for successful implementation.

Event

India Warehousing Show 2013

F

ifth edition of India Warehousing show will held in Pragati Maidan, New Delhi from 2md May to 4th May 2013. “After 4 successful exhibitions in the previous years, this edition brings more opportunities and distinguishes itself as an essential event offering a global platform”, stated Anuj Mathur, Managing Director, Reed Manch Exhibitions Pvt Ltd, the organiser of the expo.

IWS comes as a total package offering wide variety of services and solutions to attendees. The show is co-located with India Transport & Logistics Show and India Materials Handling Show and is segmented into Warehousing, Transport, Logistics, Supply Chain, Automation and Packaging. Since its inception, the show has grown by leaps and bounds, gathering industry support. Mathur further said, “Indian logistics market is growing at a healthy rate and

industry figures suggest that many international players are poised to invest in the market. With participation from US, China, Italy, Taiwan and Germany, growth of IWS is evident. ” IWS offer trade visitors an optimum business and networking platform while maintaining the demand and supply consistency. Spanning over 12,000 sqm, IWS will have more than 350 products on display and will also project several live demos and product launches. The show will be complemented with 4th India Warehousing Conference discussing, ‘Changing Trends in Warehousing, Transport & Logistics Sector: The Way Forward’. “The conference aims to surface challenges and opportunities of the sector, possible solutions along with providing knowledge sharing and networking platform”, added Mathur.

The show has garnered contribu-

tions from several leading associations and government authorities including Warehousing Development & Regulatory Authority of India, Global SMB Chamber of Commerce and The Chartered Institute of Logistics & Transport. The members have been invited to attend the show and share industry insights. IWS is also supported by many industry giants like Indospace Industrial & Logistics Parks, IndoArya Logistics, MJ Logistics, Philips and ProConnect.

IWS 2013 claims to receive more than 15000 trade visitors this year.

India Warehousing Show 2013 2nd May to 4th May 2013 Pragati Maidan, New Delhi, India

Hall: 8,9,10,11 & 12

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basics

Managing Information Flows Within The Organisation Internal integration of business information systems is a critical step in supply chain management.

S

Prof. Nitin Joshi Associate Professor, Operation and Marketing at Welingkar Institute of Management, Mumbai

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upply Chain Management (SCM) has been gaining importance in todayâ&#x20AC;&#x2122;s increasingly competitive global marketplace. SCM is a critical process for companies interested in strong performance in the market place. Be it service industry or a physical good industry, SCM forms the most important link between the supplier/service provider and the customer.

SCM has been playing a very important role in the business management but with growing competition and reducing margins it has become an essential element for companyâ&#x20AC;&#x2122;s success and customer satisfaction. In essence, SCM integrates supply and demand management within and across companies.

SCM drives coordination of processes and activities with and across marketing, sales, product design, finance, and information technology. Continual advancement in information technology and the expanding IT infrastructure are introducing new opportunities to improve service values and efficiencies, and given the amount of business value at stake, the opportunities in this vertical are very high. It contributes to business performance by finding out ways to get goods to the customer better, faster and cheaper.

SCM aims to improve the efficiency, productivity and profitability of the entire process. Today when the customer has direct access to global suppliers, the number of competing vendors in any category is huge.

Global markets have created stiff competition in the market place thereby compelling companies to maintain competitive prices. Thus, the ability to make available a given product or service at a competitive price, can give any company tremendous head-satrt advantage irrespective of its geographical location. At the same time, increased volumes in the global market add substantially to the companies bottom-line. SCM is all about adding value to the business by achieving higher volumes and better service levels either by reducing or without having to raise costs.

Supply Chain managers are essentially the implementers of the procurement strategy, the manufacturing plan and the distribution scheme in alignment with the goals of the company. Since the industry realizes the extent to which the synergy of all these activities determines the overall profitability of any firm, a lot of effort is directed towards improving the efficiency of Supply Chain.

Strategic Sourcing, tracking the material, productivity Management, Total Quality

basics

Management (TQM), Enterprise Resource Planning (ERP) are the vital tools for successful implementation of SCM. Supply Chain has always been dynamic and has become even more competitive in todayâ&#x20AC;&#x2122;s business scenario. Today Supply Chain managers seek for some of the best practices which are implemented worldwide. With the ever increasing complexity of supply Chain operations, organizations are seeking for specialized managers who are exclusively trained in Supply Chain Management. Senior executives are realizing that without considerable change they will be finding it extremely difficult to increase the efficiencies of the supply chain. Some of the skill gaps have been identified by the experts from the industry and academic institutes need to study these gaps and come up with solutions giving strength to industry.

Relationship Management

Senior executives are realizing that without considerable change they will be finding it extremely difficult to increase the efficiencies of the supply chain. Some of the skill gaps have been identified by the experts from the industry and academic institutes need to study these gaps and come up with solutions giving strength to industry.

The Supply Chain role expects practitioners to manage upstream and downstream relationships with vendors and customers in order to deliver superior value to the user at the optimum cost. Every organization tries to cement the relationships between the supplier and the buyer so that cost of indentifying a new supplier and time invested in the existing supplier is saved. As organizations grow and expand to reach out more customers globally or to source the most cost effective suppliers, they are offloading their non-core activities thereby increasing their dependencies on external system. The relationship management skill will be very vital in managing the service providers and the suppliers. It is again your relationship with the supplier/vendor which will enable you to continue to get things done even during the complex situation. The challenges of managing cross boundaries are enormous. Excellent management skills, domain expertise and winning attitude will be required to sustain supply chain management network.

Responsive supply chain Speed is the name of the game. Organizations which will be able to respond to

changing customer requirements will have a leading edge in this vertical. The knowledge of process management and continuous improvement will have to be acquired by professionals who wish to lead and want to have a bigger pie in the market. The organizations will have to restructure their organization from a function based companies to process based companies so that they are more customer oriented and responsive.

It is very much likely that responsive chains would be little costly but customer will appreciate if they see value getting created in the process.

Integrated Management Approach Professionals should not only possess strong SCM competencies but should have willingness to acquire good understanding of end to end supply chain business so that they can manage the cross functional teams for quick and efficient response for the customer. To be successful as an effective SCM manager one will have to have through understanding of all the important business functions which are involved in the business of supply value network. The professional is expected to know sales and operations planning, understanding of relevant technology tools and good costing skills. Other important techniques like Business process re-engineering, lean thinking capabilities and a customer centric approach will add a lot of value to SCM and to professional.

In short the professional should have fair amount of understanding of customers and partners, their expectations and their needs, their perception of the need, learning ability, and focus on customer value, and people management skills.

Tough supply chain involves a high degree of logistic functions that are primarily execution focused; the planning and strategy aspects of supply chain are multidisciplinary and have to involve a group approach. Realizing the importance of supply chain for the success of the organization, companies are increasingly structuring a supply chain command at top level management to ensure coordination with all the functions.

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Managing Tomorrow’s Workforce There are fundamental changes underfoot in tomorrow’s labour market, “preparing for these now is critical to ensuring companies win the battle for talent”, Darryl Judd writes.

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lobally the labour market is undergoing unprecedented, structural changes.

These changes are fundamentally changing the way we work.

With the convergence of social, demographic and technology forces, change is radically shifting the nature of tomorrow’s labour market. More and more, these changes are allowing professionals to become free agents, taking valuable skills and their experience to the market on their own terms for the long term.

The age of generation entrepreneur or GenE is here!

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The growing number of skilled workers choosing self-employment and the relentless demand for their skills, has given rise to the notion of the blended workforce–contractors, freelancers and consultants working alongside the permanent workforce in a critical capacity– and all evidence suggests it is here to stay.

Increasingly organisations are learning how to manage diverse workforces, blended with employees who are permanent, semi-permanent, virtual and transient. Adding to this a unique situation whereby for the first time in history there is now four generations in the work-

place, each with slight differing needs and desires.

If adapting to the shifting construction of our workforces wasn’t enough organisations now need to manage a generation gap of up to 50 years between the oldest and youngest workers.

This mixed workforce means

there is no room for a one-sizefits-all approach. Leaders and HR Managers will need to create new solutions to workforce planning and talent management to overcome the cultural and practical barriers. Here are five tips for managing the future workforce to effectively meet the

needs of these changing workplace dynamics.

Take stock Find out how many freelancers and independent contractors are already working for you today and where these employees sit in the organisation. This will give you

a good idea of how blended your workforce is; it might be more diverse than you think.

Assess the impact What impact does a contingent workforce have on your employee culture? What roles and functions do they perform today? What adSCMPr

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talent ditional roles and functions could a contingent workforce under take in the future? Consider how independent contractors and freelancers can contribute positively to your culture. For example, there could be a great opportunity for knowledge sharing between contractors and permanent employees, while contractors may be more motivated to support organisational goals if they are included in team meetings and events.

into the business and to update policies or create new ones where necessary.

Be Flexible The boundary between work and home life is disappearing as companies assume greater responsibility for the social welfare of their employees. Used to our advantage this can energize a workforce and create opportunities for talent which may not be able to commit to a work from office environment (such as professional mothers looking to return to work).

Make it measurable

“Globally, labour markets are undergoing unprecedented structural changes that are fundamentally changing the way we work. Taking a blended workforce approach with an eye on the future construction of how our overall workforce is made up is the only way to survive.”

Review and gather Review policies and procedures to ensure they are inclusive and relevant for contingent or diverse workers. Are we using the contingent workforce’s unique position to assist in better understanding our organisation? This valuable source of information, if we regularly gather feedback can guide us on what works and what needs to be improved. The key then is to channel this information back

Make workforce diversity a meaningful, measurable goal in staffing your organisation. It will be essential to attracting and retaining enough skilled employees in the decade ahead and ensure you stay ahead in talent competition stakes.

Use psychometric and behavioural testing tools The use of psychometric (or personality behavioural) tools assists in providing a wonderful insight into the workplace behavioural traits of employees. When collated with team results, they can help in the construction of teams and/or understand the team dynamics that might be at play. It is the assessing of these dynamics can help Leaders to manage professional networkers and soloists as they deliver high productivity without a strong need for collaboration.

Preparing for the Millennial Generation Remember, it’s not just establishing a work-force strategy to cater for the diverse nature of your future work-force that is important. The millennial generation (GenY, those born between 1978

and 2000) are now entering employment in vast numbers. Their entry will reshape the world of work for years to come.Attracting the best of these millennial workers is critical to the future of your business. Their career aspirations, attitudes about work and knowledge of new technologies will define the culture of the 21st century workplace.

Millennial’s matter because they are not only different from those that have gone before,they are also more numerous than any generation since the soon-to-retire Baby Boomer generation–Millennial’s already form 25 per cent of the workforce in the US and account for over half of the population in India. By 2020, Millennial’s will form 50per cent of the global workforce.

However, although they will soon outnumber their Generation X predecessors, they remain inshort supply, particularly in parts of the world where birth rates have been lower. They will also be more valuable–this generation will work to support a significantly larger older generation as life expectancy increases. CEOs tell us that attracting and keeping younger workers is one of their biggest talent challenges.

All of these facts lead us back to where we started. Having a tailored approach to workforce planning that considers the needs and motivations of employees at different stages of life and career development will ensure companies stay competitive and futureready. It’s an issue that organisations need to address quickly and immediately.

Darryl Judd

COO, Logistics Executive darrylj@logisticsexecutve.com

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The Perfect Order

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workforce management

Extracted from white paper on “Enhancing ‘the perfect order’ in Distribution and Logistics” by Kronos. The paper discuss how by using workforce management, LSPs can improve Labor productivity, control Labor, sustain Profitable Revenue and also in turn ensure customer satisfaction. The full version can be downloaded from www.kronos.in

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f you’re like most logistics organizations, maximizing customer satisfaction and loyalty is at the top of your mission statement. And to accomplish this goal, your organization is dedicated to the pursuit of “the perfect order.” The perfect order is a proven objective that measures the error-free rate of each stage of a purchase order. It embodies the endless pursuit of perfection measured by 100 percent customer satisfaction and retention.

But what about the distributor’s side of the equation? While the customer-centric focus of the perfect order is vital to an organization’s competitive success, the perfect order must reflect the distributor’s cost and profitability goals as well. Consider the playing field you face today — a competitive landscape loaded with significant pressures that impact your ability to generate not just revenue, but profitable revenue: n Lower pricing due to global competitive marketplace. n Higher labor, transport, and other infrastructure costs. n Rising customer expectations,

faster turnaround, and shorter lead times. n Integrated web/catalog and other new fulfilment channels in the digital age. n Costly and complex value-added services required for competitive differentiation, such as accelerated delivery, kitting, or custom packaging . n Eroding profit margins. n Capacity constraints due to a shortage of qualified talent throughout the supply chain.

In this fiercely competitive environment, the logistics organizations that win will be those that can optimize both the customer and distributor sides of the perfect order. This focus on the perfect order will drive the profitability necessary to face the intense competitive pressures of the 21st century without sacrificing the service necessary for customer retention.

New Focus on the Workforc Labor is now typically more than 50% of the operating expense on the warehouse floor.

Increasing productivity while containing cost is the only way the

organization optimize both customer satisfaction and profitable revenue.? Traditionally, cost-cutting measures are target on overhead, fuel, equipment, or other often uncontrollable expenses that “nip at the corners.” But to go to the heart of cost control, you need to target your largest controllable expense—labor.

How can you better manage your most costly expense? The answer is workforce management. A new generation of workforce management strategies and solutions is available to help organizations: n Increase labor productivity— get more throughput out of your workforce. n Control labor costs—ontain the expense itself.

With such a significant impact on profitability, these workforce management approaches can create a path to the perfect order—an order that offers a true win-win for both, organization and your customers.

Workforce Performance: It’s All About Visibility New workforce management approaches can give you unique visi-

The Perfect Order For the Cutomer

For the Organizations

Right product, right quantity, right place, right Right employees, right resources, right utilizatime, right cost, per the customer’s expectations tion, minimal non-productive time “The perfect order” reflects the goals of both the customer and the distributor. The customer wants to receive the order with 100 percent satisfaction. The organization needs to deliver the order with maximum labor efficiency and cost control to increase its profitable revenue. New workforce management approaches are available that can help meet both objectives.

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workforce management bility into two critical areas of your workforce—performance and costs. This improved workforce visibility can help maximize labor efficiency, improve cost control, and sustain profitable revenue.

What’s the risk of flying blind?

If you can’t control labor expense on the warehouse floor—or improve labor productivity and throughput—you can’t expect to maintain profit margin on output.

You can’t fulfill the true potential

pending on blended cost averages and estimated overhead to take a “best guess” at actual labor costs?

Challenge No. 1: Labor Performance Visibility The key to increasing productivity and throughput is to have real-time visibility into what’s happening on the warehouse floor—the tasks and subtasks that are conducted by both people and equipment— so that (1) unproductive time can

In this fiercely competitive environment, the logistics organizations that win will be those that can optimize both, the customer and distributor sides of the perfect order. of your side of the perfect order.

Organizations face two key visibility challenges that can severely erode your ability to sustain profitable revenue—labor performance and labor cost.

Do you have the visibility you need into these two vital areas?

Or, like so many other logistics organizations, are you behind the eight ball, relying on after-the-fact labor management approaches?

Struggling with clipboards and notebooks to manually collect labor data on the warehouse floor? Or de-

be identified and then transformed into productive time or (2) underutilized labor can be put to good use. Imagine what impact filling excess capacity might mean for increasing your throughput.

Each task has its own output, resulting in hundreds—possibly thousands—of individual status transactions. The problem is that not all these tasks are captured. In many cases, true task-level status reaches the operations manager after the fact. How helpful is it to know at 2:37 p.m. what five em-

The Costs Of Flying Blind Labor is now more than 50 percent of a typical operating budget, so unseen and uncontrollable labor costs can have a catastrophic impact on profit margins.

On average, 15 percent of all paid time is nonproductive, which creates labor expense without adding value. When applied to a warehouse with a $10 million payroll, just 5 percent in non-productive time wastes $500,000 annually.

Competitive differentiation requires value-added services that increase labor costs. Without real-time information to keep labor expense within expectations, margins erode.

ployees were doing at 10:17 that morning—when you might have needed them to help unload a latearriving truck?

Challenge No. 2: Labor Cost Visibility Does your paid time equal the time taken for each fulfillment task and activity in the warehouse?

What happens to the labor expense of paid time that’s never assigned to any pick-ticket, work order, or load? How many “lost minutes” do you have? What were those minutes for, and how much did they cost? How much did they account for inconsistent profit margins?

Your organization needs to identify and allocate every labor activity to every payroll dollar. Identifying “lost time” might help you increase throughput by putting that time to more effective use, correctly drive more accurate labor costing for more profitable bids, or reduce overall labor expense by eliminating that time altogether.

But if you can’t understand how paid time is spent—for which tasks, when, and by whom—then you have poor visibility into true labor costs and the causes behind margin variances. Ultimately, you are left with a “best guess”.

Real-Time Visibility: Improving Throughput and Controlling expense A typical employee earning $20 an hour attends a team meeting that runs long and returns a little late from a break, creating maybe just 12 minutes of “lost time” that day.

At just 3 percent of an eight-hour shift, those 12 minutes may not seem like a lot. But multiply those 12 minutes a day by 1,000 workers and they add up to more than $1.1 million a year. More than $1 million in extra wages that return zero value to your organization.

Logistics organizations have SCMPr

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workforce management VISIBILITY INTO LABOR PRODUCTIVITY Conventional Methods

A Better Approachs

Manual timekeeping approaches such as spreadsheets or clipboards lead to inaccurate or missing data and inefficient or labor-intensive processes.

You want an easy, effective, and efficient way to collect labor data. Consider advanced timekeeping and recording devices that can identify employees prevent improper clock-ins or clock-outs, prompt for missing information, and even provide audio or video notices. Imagine a safety reminder video message, right there on the device when the employee punches in.

Lack of standards (like OT allocation or absence approvals) introduces variability and inconsistency across locations, leading to morale issues and possible regulatory risk.

Automation excels at bringing regimen and discipline to process. Consider a labor management system that provides a structured workforce management methodology across the organization, yet with flexibility to adapt to locationspecific needs or new equirements as the logistics environment changes.

Labor isn’t tracked at the task level, so while at any point it may be possible to know where inventory is, it’s not always easy to know where labor is, let alone if that labor can (and should) be reallocated to other tasks.

Go beyond mere timekeeping to collect labor-focused data for tasks and activities within the workday. Integrate data collection with your existing tools (scanners, etc.) to identify actual worked time as well as nonproductive time—both expected, like scheduled breaks, or unexpected, like material delays. Integrate with the warehouse management system to record quantities picked by employees to truly assess productivity. Gain visibility into the labor force by tracking activity at the employee level—know what people are doing, for which pick-ticket, and even where in the facility those resources are located.

Visibility empowers you to respond effectively to unexpected situations, such as sudden spikes in demand, unanticipated orders, labor fluctuations, or customer requests for additional services such as a rush shipment.

complete knowledge of their labor costs—all they have to do is look at their payroll. But knowing the total expenditure only goes so far.

With deeper workforce performance visibility, you and your executive team can gain insight into: n How those paid work hours are being allocated (reconciling paid labor to output) n How those dollars can work harder for the organization (increasing productivity while containing costs).

Finding just 2 or 5 per cent of additional productivity per employee per day can generate huge value to the organization. The opportunities to increase throughput—and profitable revenue—can be dramatic: n Seventy-seven percent of logistics operations using workforce management have realized a 10 percent-plus boost in productivity and more than one-third have gained a 25 per cent-plus increase in labor output. Would greater capacity and higher efficiency let you provide more value-added services?

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(Uncover the Secrets to Gaining a Competitive Edge: How Workforce Management Drives Productivity and Quality Service. Conducted by RBInteractive Research Group on behalf of Logistics Management and Supply Chain Management Review magazines, March 2010. Sponsored by Kronos.) n Eighty percent of organizations have reduced labor costs by an average of 17 per cent. Would 17 per cent lower labor costs lead to more competitive bids? Help you capture more business? (Aber-

deen Group, On-Time and Under Budget: Maximizing Profits with Efficient Warehouse Management - Aberdeen Group, 2009). n Distributors have seen a 31 percent lower average backlog and an order turnaround that’s one day quicker.Would quicker turnaround drive up customer satisfaction?

An Automated, Systematic Approach Are you or your workers really going to sift through millions of tasks, activities, and timekeeping transac-

Scenario: Workforce Management on the Warehouse Floor 4:13 p.m: A major customer has an order scheduled for the 5:00 p.m. shipment, the last one of the day. Using a workforce management approach that identifies the labor status to the minute, with easy access through a tablet or browser, the logistics manager quickly determines that existing staff is working at peak productivity but the order is falling behind schedule. He identifies another order that is nearing completion well ahead of its delivery time. He pulls workers from that order and reassigns them to the one in jeopardy.

4:15 p.m: The reassigned workers arrive at the dock moments later and help complete the packaging.

4:55 pm: The trucks roll away from the loading docks on schedule with the completed order. Customer expectations have been met. Profit margins are maintained, as there are no unexpected labor expenses. The perfect order—a win-win for customer and workforce—has been achieved.

workforce management VISIBILITY INTO LABOR COSTS Conventional Methods

A Better Approachs

LSP’s seeking labor cost information are often left with a long look in the rearview mirror, typically too late to take meaningful corrective action. They rely on reports —produced through a cumbersome process of combining data from payroll, a warehouse management system, and other systems—that offer too little, too late.

Logistics managers need timely access to the current status of operations: core staffing levels, job assignments, and order status (including in process, quantities remaining, and completed). Look for ways to provide dashboard views of critical information, and tailor the information to the needs of each type of operation in each location.

(For example, a transportation operator may have different needs than a floor supervisor.) Consider the best ways to make the information available.

Clearly, web-based is a must, providing 24/7 access from anywhere in the world. Even better is migration to mobile devices like smartphones, PDAs, and tablets.

Few logistics operations have labor cost targets. Without such targets, it’s hard to see when labor costs start to exceed expectations—even though labor cost is driven by wage rates (seniority), premium pay (OT), incentives, and temporary labor.

Consider implementing key performance indicators (KPIs) for labor cost. Aggregate the data across the organization and present the data in a relative context.

First, at the employee level, so the comparisons are fair.

(After all, comparing total labor expense for a 120-employee facility against a 330-employee facility doesn’t make sense.)

Second, in ways that resonate with each manager. Seek out labor management solutions that bring you some guidance and a starting point—bestpractice performance targets, ideally broken out by type of labor expense, such as planned OT vs. unplanned, OT hours, OT expense, etc.

High-level reports don’t provide the detailed data—or ways to work with it—that can lead logistics managers to true root causes and subsequent corrective actions.

Leverage and dissect your labor information to identify trends, patterns, and cause-and-effect relationships. For example, how the total number of worked hours impacts employee fatigue—and how that ties to accuracy and efficiency on the last hour of the shift.

Visibility empowers you to respond effectively to unexpected situations, such as sudden spikes in demand, unanticipated orders, labor fluctuations, or customer requests for additional services such as a rush shipment.

tions to find which transactions cost more than expected? Which were unproductive? Of course not—the sheer mass of information makes a manual approach nearly impossible.

What your organization needs is an automated, systematic workforce management approach that establishes and enforces the highest standards of performance. An approach that: 1. Establishes uniform performance standards for tasks and subtasks—productivity and throughput.

2. Establishes cost expectations— labor budget and profit margins 3. Identifies which transactions are failing or are about to fail your performance standards and/or cost expectations.

4. Monitors those transactions and guides your managers to necessary corrective actions .

This approach can provide more than real-time visibility. It can help you identify trends and patterns on the warehouse floor, determine likely root causes, and even guide your managers to the corrective steps necessary to improve labor performance enterprise wide while controlling payroll expense.

Rethinking Conventional Approaches with Workforce Management As you consider adding a workforce management capability to your operation, ask these questions: 1. What approaches are you using today? What kinds of problems do those create?

2. What if you could capture labor performance data from your warehouse floor and transform it

into actionable, real-time management information?

Conclusion While perfection remains an aspirational goal rather than a quantifiable metric, a more effective use of labor can take your organization to a new level of productivity and profitability.

Visibility into labor productivity and labor cost brings you opportunities to improve throughput on the warehouse floor, increase customer satisfaction, and win the price wars while maintaining your margins. By finding innovative ways to increase throughput while containing costs, you can successfully deliver on the true promise of the perfect order: n For the customer: 100 percent satisfaction and loyalty n For the distributor: sustainable profitable revenue.

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white paper

Forward Looking Functional excellence is measured by higher sales, lower transportation costs, lower inventories, or better control of operations.

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This white paper is produced by Institute of Supply Chain Management, Mumbai. For more details please visit www.iscmindia.net

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ndian firms have realized that adopting supply-chain management as a strategic competitive advantage tool can have early payoffs. But it is unfortunate that much of this effort is not effectively directed or fully understood. The result is a growing gap between firms that truly understand and implement the concept of effective, forward-looking supply chain management and those that simply follow the trend, and withdraw after initial gains.

Among firms that do better, information technology plays an important role. They realize that early efforts cannot be maximized without the technology that accurately links supply with demand. But this is not as easy a process as it sounds. If the supply-chain really is a mechanism of fulfilling demand, then an uninhibited flow of information is mandatory.

Why then do firms fail to capitalize on the use of information technologies? What inhibits this seamless flow of information across the supply-chain? What lessons can be taken from those firms that have been able to use IT successfully to add value and create a sustainable value chain?

How to Function Optimization requires reliable electronic data interchange across the entire system; a single bottleneck impeding information transfer puts the entire network at a disadvantage. Moreover, it is only when the firms begin to consolidate the supply chain that they realize the limitations and constraints present in the organization.

In a bid to iron out these constraints, an increasing number of companies are looking at their operations in terms of a pipeline that

white paper manages the flow of materials from the source to the ultimate consumer. Though not entirely new, the pipeline idea is perceived as an analytical concept that transcends the internal political boundary of the firm, and achieves a quantum leap in functional integration and operational effectiveness. However, it is debatable whether this truly happens.

Most business throughout the world organize their people and manage their activities through functional groupings-sales, marketing, manufacturing, finance, distribution, and so forth. A primary goal of this function is to develop an efficient way to execute their work. The people in these functions become experts and seek to achieve superior performance in their functions. Today, this is termed as functional excellence.

But these pursuits for functional excellence have become the biggest hurdle for the firms to move to more advanced levels of supply chain gains. Functional excellence was all right when demand was certain and the customer lived in the sellersâ&#x20AC;&#x2122; market. As markets become dynamic, characterized by demand uncertainty, significant seasonality, short product life cycles, or high competitive intensity, functional excellence was a hurdle.

The Requirements These practices of business excellence have created invisible walls within the political boundaries.

Each department tries to compete with the other and the internal competition leads to a situation of one-upmanship. This affects the flow of information and material through the organization. In a volatile and dynamic environment, the need of the hour is to manage demand by planning supply to reduce inventory, both inbound and outbound.

There is a need to share the information that each department has. For instance, the marketing and sales department needs to pass on its knowledge to purchase and manufacturing as well as the supply chain. This will only happen if each department has the overall business objectives of the company in mind, rather than its own performance.

This means that cross-functional trust and faith are necessary. But often, there is a lack of trust among these departments. Finally, even

increased the velocity of product movement, and would have reduced inventory in one place and shortages in another.

Therefore, companies that organize for functional integration will almost certainly outperform those that organize for functional excellence. But how should a company bring about this functional integration? There is no silver bullet answer for ways to achieve functional integration.

Rather, one must address all aspects of a companyâ&#x20AC;&#x2122;s operations,

Most business throughout the world organize their people and manage their activities through functional groupings. though the departments do better individually, business suffers.

Here is case in point: In an agro-chemical firm for which ISCM did a study of its supply chain, we found that there was a complete absence of this trust between functional areas. The supply chain department was insensitive to the demand of the sales force for a product and went on feeding wrong information about the availability of the product. The sales force went ahead promoting the product. When its supply was outsourced from a European country it was clear that there was shortage of this chemical worldwide.

The net result was wastage of money, time, and loss of market.

What was surprising here was that this very chemical was available in another region where demand for the product had declined the previous season. The trust and sharing of information would have

as follows: 1 Manage the process, not the functions.

2 Align measurement systems with overall goals.

3 Use integrating mechanisms such as the sales and operations planning meeting, cross-functional teams and the team problem solving approaches.

Work to develop a culture that encourages teaming and crossfunctional collaboration. This can be accomplished through a variety of initiatives including mission value statements, recognition of teaming efforts, and designing career paths to involve multi-functional assignments.

All these will lead to creating a useful information technology architecture. Firms, which have done this first, have been successful in integrating information technology with their organizational design and hence reap value and dictate the industry structure.

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ClubSCMPro ClubSCMPro aims to nurture an active community of Supply Chain decision makers, professionals, experts and academicians. The idea is to build a forum where the SCM stakeholders can not only share great ideas on best practices, but can also discuss issues and pain areas affecting supply chain process.

As qualified members, you can avail the following benefits: > Subscriptions to SCMPro, monthly Enterprise magazine > Regular invites to Supply Chain Workshops, Seminars, Conferences, etc > Industry Reports > White Papers > Case Studies > Exclusive invite to the elite annual Black Suit Event

ClubSCMPro m e m b e r r e g i s t r a t i o n o p e n a t w w w. s c m p. i n