SCMPro March 2013 Edition

SCMPr

Supply Chain Management Professional

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

Vol. 1—No.2 `150

Salary Survey Report 2013 Page...42

Ensuring Food Security Evaluating how Agri Supply Chain can evolve to capture Value for the participant

risk management Reviewing RapAgRisk.

Page..33

In This Issue

talent When hiring decisions go bad.

Guru Speak Asean’s Supply Chain Challenge.

Page...47

Page...7

www.scmp.in

...live supply chain Industry Portal for the Supply Chain Professional

editorial

Building a Vibrant Community I Girish V S Executive Editor

t is with great pleasure I present to you the second issue of SCM PRO. We had barely recovered from the emotional high of the first issue, and we plunged into the second issue. That too at a time when the nation was looking forward to a budget. The future we were looking at in the first issue is getting defined brick by brick. There is a huge amount of reforms we still need. The time for tokenism is long past gone. Mere tinkering with a few rates or allocating some funds to needed sectors is not enough.

The nation heaved sigh of relief with the budget by the Finance Minister.

For once, politics took backstage to economics – but not in full measure.

There is cause for hope – tinged with caution. I believe it is not yet time to pop the bubbly. We will watch and bring you our take on these developments.

In the second issue of SCM Pro, we bring you an eclectic mix of articles for your reading.

Food security is of prime importance to a nation’s progress. It is reported that up to 40% of the agri produce gets spoilt as it travels from Farm to Fork. The minister of state for agriculture and food processing industries, Tariq Anwar, pegs the monetary value of this wastage at Rs. 50,000 crores per year. In our special feature issue, we focus on what we can do as supply chain professionals to prevent this colossal wastage – we have a series of articles that focus on various aspects of the Agri Supply Chain.

One of the defining developments in our part of the world is the rise of ASEAN and its impact on India. For our Guru Speak we caught up with Dr. Mahender Singh the CEO and Rector of Malaysian Institute of Supply Innovation in Malaysia. We bring you his views on leveraging supply chain as a platform for growth in ASEAN. In addition we have an interesting mix of articles carefully selected for your reading pleasure. I hope you enjoy them.

As always, we invite your comments and views on our content. Especially, if you do not agree with the views of our authors, please write in with your views. We encourage healthy debate. And in this debate we see the green shots of a vibrant supply chain community.

Let us build this community together.

Happy Reading.

Executive Editor

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Contents march 2013 4 SCMPr

06 ANALYSIS >> Budget Musings: What does the Budget Hold for SCM. SCMPro looks at the Budget from the Supply Chain Prespective.

07 guru speak >>

37 Strategy >>

Mahender Singh and Ken Cottrill discuss how ASEAN is working towards creating a single Market.

Dr. Asad Ata discuss how India's Rural Farms can flourish in India.

39 Rural Market >> Dr. Nitin Joshi writes about the challenges and Issues to reach the complex Rural Mark

10 insight >> Dr. Larry Lapide advices SCM Professionals to think financially for themself and for the firm.

33 Risk management >> SCMPro review RapAgRisk (Rapid Agricultural Risk Management) for readers.

March 2013

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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

Agri Supply Chain - Enusirng Food Security to the Nation: A well developed Agri Supply Chain is an imperative for the growth of the Sector and ensuirng food security o the nations.

42 Salary survey >>

50 Last Page >>

Logistics Executive in Conjunction with SCMPro brings to you the second edition of the 2013 Salary Guide report for the Indian Supply Chain and Logistics market.

Dr. Rakesh Singh writes how India can play an important role in Southeast Asia as a part o ASEAN economic community.

47 Human resources >> Making a wrong hiring decision costs money. Its not just a business issue but an economic one too, writes Darryl Judd.

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

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n analysis

n Practice

n knowledge

n Survey

n human resource

Budget for infrastructure

Cautious Hope T

he nation waited with bated breath for the budget – the pendulum swung between a populist budget to a pragmatic one. And the FM chose a middle path – shunning populism and with a high dose of pragmatism. A lot has been written about the budget. At SCMPro, we decided to look at the budget from the supply chain perspective.

Government of India is taking various steps to come back on high growth track. Right from the introduction of second phase of reforms by Dr. Manmohan Singh, fiscal consolidation plan by Mr. P. Chidambaram to rate cut by Mr. D. Subbarao everyone is taking initiatives for rebooting the Indian economy.

Only China and Indonesia is growing faster than India in 2012-13. And in 2013-14, if we grow at the rate projected by many forecasters, only China will grow faster than India. The well known fact is no economy can grow without proper infrastructure, and our finance minister has given importance to this fact in this year’s budget There is a huge growth potential by improving business with fast growing South Asia and China and for this we need develop our ports. All the countries are now connecting with each other for interdependent growth and India can grow rapidly by improving on infrastructure

which will help us in interconnecting with other countries.

In the year 2011-12 we had allocated over `2,14,000 crore for infrastructure development against `1,73,552 crore in 2012-13. “While every sector can absorb new investment, it is the infrastructure sector that needs large volumes of investment. The 12th Plan projects an investment of USD 1 trillion or `55,00,000 crore in infrastructure. The Plan envisages that the private sector will share 47 per cent of the investment” said Mr. Chidambaram.

Allocations being made for 3000 kms roads, two new major ports in Andhra Pradesh and Tamil Nadu of capacity of 100 million tonnes and 42 million tonnes respectively. Five inland waterways have been declared as national waterways. Special steps are taken to improve infrastructure in North East India under ‘Look East’ policy. Government will seek the assistance of the World Bank and the Asian Development Bank to build roads in the North Eastern States and connect them to Myanmar.

Even in Railway Budget government is focusing on infrastructure development through Public Private Partnership (PPP). An investment of up to `9,000 crore is expected under these projects including `3,800 crore for port connectivity projects, `4,000 crore for coal mine connectivity and Rs 800 crore for Budget for Infrastructure iron ore mines connec5500000 tivity improvements.

Government is taking some measures to increase investment in infrastructure like issuing Infrastructure Debt 214000 173552 Fund (IDF), establishing FY 2011 FY 2012 12th Five Year Plan India Infrastructure Finance Corporation Ltd. Budget for Infrastructure (` in crore) (IIFCL).

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Railway Budget 2013 (`in crore) Iron Ore 800 Coal Mine 4000

Port 3,800

In the last two years, a number of institutions were allowed to issue tax free bonds. They raised `30,000 crore in 2011-12 and are expected to raise about `25,000 crore in 2012-13. Government propose to allow some institutions to issue tax free bonds in 2013-14, strictly based on need and capacity to raise money in the market, upto a total sum of `50,000 crore.

National Highways Authority of India, Indian Railway Finance Corporation and government owned infrastructure finance company IIFCL would be able to raise `10,000 crore each through issuance of tax-free bonds. Raising funds through foreign markets will be difficult when we are cutting down on our major policy rates.

Definitely lack of availability of finance is an issue and we must appreciate the allocations made for infrastructure this year. But even though if funds are available can we develop our infrastructure at expected rate?

According to a Department of Economics, University of Delhi study in 2009, 40 per cent of a sample of 895 projects across 17 infrastructure sectors in India exhibited cost overruns and over 82 per cent exhibited time overruns.

So this budget has given hope for infrastructure development, bringing back the growth story of India but with the caution that we will perform better not only on allocations but also on implementations and completions.

guru speak

Southeast Asia’s Supply Chain Challenge

Building a Platform for Growth The Stage is Set for Southeast Asia to take its place as a world-leading trading power.

T

Mahender Singh Executive Director MIT Global Scale Network in Asia & Ken Cottrill : Global Communications Consultant MIT Center For Transportation & Logistics

he countries of Southeast Asia are an integral part of the Asian economic miracle. In addition to benefiting from the growth of China and India, domestic markets in Southeast Asia are expanding and the region is forging stronger links with other developing economies. The Association of Southeast Asian Nations (ASEAN) is actively working on creating a single market that will compete with other international economic community in terms of its global and regional influence as a trading bloc.

However, if such a vision is to be realized, one of the things that Southeast Asia must focus on is developing world class supply chains. Presently inconsistent quality and availability of transportation infrastructure is impeding the flow of goods in the region, and adding significant cost to logistics operations. Cutting-edge supply chain expertise can address some of these challenges and drive economic growth.

Located in the heart of a vibrant economic zone, ASEAN countries have a combined population of 600 million people and a GDP of $1.5 trillion. They generate $1.7 trillion worth of trade annually, a figure that is likely to increase significantly if Southeast Asian countries maintain projected growth rates of 5 to 6 per cent over the next few years.

ASEAN aims to establish a single market, the ASEAN Economic Community (AEC),

by 2015. Ministers at an AEC Council meeting this May noted that implementation of the AEC blueprint has progressed, particularly in “creating a single market and production base, as well as establishing a competitive economic region.” But more importantly, regardless of whether the target date for creating the new community is met, the goal is indicative of the region’s economic ambitions. Another reason to believe that Southeast Asia is on the cusp of a new era of prosperity is that its expansion is fuelled by several new sources that reinforce its links with regional and global economies. Some of these sources are presented below: China and India: Together these countries are the engine that drives much of the world’s trade and investment. Accordingly, the exports from ASEAN countries to China and India have almost tripled over the last decade (see Table 1 and Table 2). The volume of trade is expected to climb even further as Chinese and Indian consumers gain more purchasing power and create greater demand for products manufactured in neighboring countries.

Also of note is China’s increasing investment in emerging economies, especially in commodities. ASEAN nations that stand to benefit from these investments include Indonesia (coal, palm oil, and natural gas), Thailand (rubber), and Malaysia (palm oil, natural gas, oil).

Emerging Markets: Southeast Asia will SCMPr

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guru speak benefit from closer ties with other emerging economies, a direct consequence of increasing South-South cooperation. In its Asian Development Outlook 2011 report, the Asian Development Bank (ADB) suggests that developing countries should strengthen their “intra” economic links. In the words of Changyong Rhee, ADB’s Chief Economist, “Growing South-South relations at a time of modest growth in industrial economies could be a potential new driver of global growth, but only if these economies become more open to trade and capital flows with each other.”

While world trade has, on average, expanded by 16% over the period 2004–2008, Asia’s trade with the Middle East and Latin America has increased by an average of 30% during this time. The region’s trade with other emerging economies stood at 13% of total exports out of Asia in 2008.

As the economic and financial linkages between these emerging economies solidify, the benefits in vital areas including trade, finance, investment, energy and technology will significantly increase. But stronger economic ties with new partner countries will require Southeast Asia to develop supply chains capable of supporting the increase in international trade volumes.

Sector Based Issues Growth in the region will drive demand for sector-based supply chain solutions to address the needs of different industries.

Construction: According to the ADB, approximately 44 million people are being added to Asia’s urban population every year.

Furthermore, there are plans for massive investment in infrastructure development to sustain the economic competitiveness of the region. The ADB estimates that Asia will require about $8 trillion of infrastructure investment during 2010-2020.

Commodities: The region is expected to benefit from robust Table 1 Exports to China and India demand for raw materials from China % of total exports Value (USD mil) and India. In partic(average) ular, rapid urbanizaASEAN - 5 2010 15.0 $17,703.1 tion in both nations ASEAN - 5 2000 5.3 $ 2,581.0 will continue to ASEAN -5 Share of total exports and value of exports to China and India stimulate demand 8 SCMPr

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for commodities, mainly agricultural and energy products.

Manufacturing: A complex web of integrated production facilities has developed in the region over recent decades, most notably in the auto industry. The growth in intraAsian trade has promoted vertical specialization within this network. More foreign direct investment coupled with increasing trade in intermediate goods is expected to further strengthen Southeast Asia’s manufacturing base and boost growth.

Clouds on the Horizon While the outlook appears bright for Southeast Asia as a regional and global trading bloc, some difficult hurdles remain. One of the most challenging is poor supply chain infrastructure, which if not addressed, would continue to impede future growth.

The following key issues were laid out by ASEAN Deputy Secretary-General, S. Pushpanathan, in a paper presented at the 24th Asia-Pacific Roundtable, Kuala Lumpur, Malaysia, June 2010.

Fragmented roads: Over the last decade, the number of vehicles has doubled in countries such as Indonesia, Vietnam, Cambodia, and Myanmar, but the development of respective highway systems has lagged behind. The quality and capacity of roads vary greatly from country to country. Singapore boasts fully paved networks, while in Cambodia and Lao PDR less than 10% of the highway networks are paved.

A Trans-Asian Highway is under construction, and the 38,400 kilometer-route will run through all 10 ASEAN countries when complete. About 97% of the desired length of highway had been built by 2008, but critical links are missing and the quality of some roads is questionable.

Gaps in rail transportation: Over recent years the development of new rail links “has not been substantial” in any of the ASEAN countries except Vietnam, according to Pushpanathan. A flagship project is the Singapore-Kunming Rail Link (SKRL). Scheduled for completion by 2015, the SKRL line is built on existing national networks and will span seven ASEAN countries. Completing key links in the route will require substantial resources.

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guru speak Uneven port development: Maritime transportation is crucial to the region’s economic future and forty-seven designated ports in nine countries form the backbone of the trans-ASEAN port network. Singapore and Malaysia’s Port Klang are leading facilities; the remaining gateway ports vary greatly in terms of their cargo handling capabilities.

Air shortfalls: A number of ASEAN member states have invested in airport improvements, and facilities are generally regarded as adequate for current traffic levels in capital cities. However, freight handling terminals in some airports do not meet the required standards.

Logistics services represent another important piece of the region’s supply chain puzzle. The ASEAN Roadmap for Integration of Logistics Services Sector aims to liberalize these services and related activities to rapidly enhance regional logistics capabili-

components of supply chain management solution suite. However, the high initial cost of staff training often deters smaller logistics companies from investing in the technology according to the report. Disparities between transportation networks make it difficult to adopt TMS and WMS solutions. Also, “in countries such as Indonesia and Vietnam, advanced telecommunication infrastructure is exclusive to the major cities, making cargo tracking difficult in the rural areas,” says Frost & Sullivan.

Looking ahead, the adoption of TMS will “be driven by the need to remain competitive and cater to rising business opportunities from a growing manufacturing base in Southeast Asian countries,” the firm says. It sees demand for WMS coming from large logistics and manufacturing companies, and logistics park developers.

The Way Ahead

Southeast Asia is uniquely positioned to benefit from the global shift in economic Growth n GDP Growth forecast: 2011 - 2016: n GDP Growth forecast: 2011 - 2016: power from west to east. But potential 9.5% (2000 - 2010: 10.3%) 8.1% (2000 - 2010: 7.3%) if the region is to realize its n GDP Per Capita : $ 8,118 in 2016 n GDP Per Capita : $ 2,110 in 2016 full potential, a top priority (2010: $ 4382; 2000: $946) (2010: $ 1,265; 2000: $ 460) must be the development of Trade with Total: $109.4 bn in 2010 Total: $37. 2 bn in 2010 world class supply chain faASEAN-5 (2000: $36.1 bn) (2000: $ 6.5 bn) cilities and expertise.

China And India’s growth potential and ties.

The Framework Agreement on Services The region’s inadequate infrastructure trade with ASEAN-5 sets a deadline of 2013 for finalizing com- and supply chain services add cost and hammitments in this area. per goods flows. A 2008 ASEAN study cited Meanwhile, Southeast Asia’s growing eco- by Pushpanathan estimates the logistics costs nomic influence is attracting attention from associated with the intra-ASEAN movement technology vendors. “Supply chain technolo- of freight containers as $2.25 billion a year. gies in Southeast Asia are poised to grow on Transportation, terminal, and access costs the back of increased requirements for more account for about 55% of this total, and efficient supply chain operations and end us- 45% are attributed to time costs. Impleers’ need to reduce logistics costs,” concludes menting an ASEAN blueprint for improva report published in December 2010 by ing the efficiency of distribution networks research firm Frost & Sullivan. The report, would reduce logistics costs by roughly $140 2020 Supply Chain Technology RoadMap; million per year according to the study.

Similar efforts are required to build a supply Southeast Asia, looks at the demand for transportation management systems (TMS) and chain talent pipeline. The skills needed to manwarehouse management systems (WMS) in age supply chains have changed dramatically Singapore, Malaysia, Indonesia, and Vietnam. over recent decades. Overlay these changes with TMS is the umbrella term for software the specific needs of Southeast Asian businesses, solutions that manage freight transportation and it becomes apparent that in order to compete operations, and WMS solutions manage the effectively in regional and global markets, movement and storage of materials in ware- Southeast Asia must invest in supply chain houses. Both types of software are important education and research.

Table 2

China

India

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insight

`

Speak Financially, Get Results

Before a Supply Chain project can be started, executives need to be convinced that it will improve financial performance over the long run.

By Larry Lapide.

A

long time ago I got my doctoral degree from the University of Pennsylvania’s Wharton School of Business in an area called Operations Research (O.R.). As a newly minted graduate, I’d explain to people unfamiliar with the discipline that it involved the use of the scientific method and quantitative analysis to solve business problems. I had been trained in decision making, quantitative modeling, and optimization techniques.

When someone would ask what my favourite graduate course was, I would carry on excitedly about my methodology course. It was taught by a famous professor who delighted students with stories about companies that had successfully used O.R. to solve some of their most pressing business problems. Math applied to the real-world of business—what course content could be better than that? At least that’s what I thought at the time.

Finance is the Language of Business

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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Fast forward to a recent discussion I had with some colleagues about courses that should be added to a supply chain program. When asked for my opinion, I responded “Introduction to Accounting.” Why accounting and not O.R. methodology? I’ll try to explain below.

During my 35-plus years of business experience, several things have made me realize the importance of accounting and financial reports to understanding what really makes a business tick. Here are several points to consider.

In one of my SCMR column titled “The Operational Performance Triangles,” I presented a triangle that can be used to help conceptualize whether a balanced set of operational

performance objectives align to competitive corporate strategies. Two points of the triangle, Efficiency and Asset Utilization, represent those types of performance objectives that directly affect a company’s income statement and balance sheet, respectively. (The third point on the triangle represents Customer Response objectives that do not directly affect financial reports). My point in that column was that supply chain professionals need to understand how the first two types of operational objectives—efficiency and asset utilization—relate directly to financials.

Second, my research and experience with Sales and Operations Planning (S&OP) processes has convinced me of the critical importance of translating unit-based operational plans into monetary (i.e., financial) terms. In this way, S&OP teams can maintain the visibility they need to help navigate companies towards achieving financial goals—especially those related to profitability and Return-on-Assets (ROA).

Third, whenever a large-scale project is to be undertaken, a business case analysis must be developed in financial terms.

Fourth, and lastly, I’m now completely convinced that all future supply chain leaders will need to be good business people first and supply chain experts second. For this to happen, they must become conversant in the language of business, which is accounting and financially based.

Luckily for me, I took some elective introductory courses in economics and accounting during my graduate studies in O.R. While the accounting course involved a lot of painstaking, time-consuming detailed calculations on paper (we didn’t have today’s computerized spreadsheet software

insight The DuPont Model Net Profit Margin Net Operating Profit After Taxes Sales Cost of Goods Sold Measures of the effectiveness with which assets are used to produce revenue

S, G&A Expenses Interest Expenses

X X

Total Assets Turnover Sales Average Net Assets

= =

Return on Assets Return on Assets

Sales

-

Total Costs

Net Income

-/-

Income Taxes

Net Profit Margin

Sales

Cash Measures of investments in working capital assets needed for sustaining ongoing operations

X

Account Receivable Inventorles

Current Assets Sales

Marketable Securities Other

Return on Assets

+

Total Assets Turnover

Total Assets

Land Buildings Measures of investments in long-term, revenueproducing assets

Machinery and Equipment

Non-Current Assets

Intangibles Source: www.12manage.com

back then), the hard work helped me better understand the financials of an enterprise. I learned to read balance sheets and income statements while developing an appreciation for the value of corporate assets.

Companies spend a substantial amount of upfront money to build assets to manufacture and distribute supply as well as to deploy inventories in anticipation of customer demand.

They expect to quickly get returns on their investments. Intel, for example, spends billions of dollars to build semi-conductor fabrication plants. So the company operates them 24/7 to make sure that it is maximizing its long-run ROA on these huge investments. Short-term margin and profit generation alone cannot justify these investments.

The DuPont Model Put very simply, all supply chain managers should become conversant in accounting and finance if they want to get ahead.

Once conversant, they will be able to build

business cases that will resonate closely with executive-level thinking. The DuPont Model (shown in above diagram) is a good blueprint to use when developing a business case. The model, which according to Wikipedia was established in the mid-1920s, has been used by managers over the years to translate operational plans into their expected financial impact on ROA. While simple, the model is robust in showing the interconnections among operational productivities, revenues, operating costs, assets and inventories, and their impact on ROA. Using a model such as this allows managers to translate operational supply chain improvements into their financial meaning. For managers that adopt the model and follow my advice to “think financially,” their executive presentations will go from being “bored-level” to “boardlevel.” This will help them to get the executive approvals as well as those promotions they are looking for!

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Lead story

Agri Supply Chain

Enabling Food Security to the N Agricultural Sector in India is poised to become the reckoning force with well developed Agri Supply Chain Management (ASCM). Girish V.S., Executive Editor explores a way ahead for the sector.

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lead story

A

Nation

griculture is the dominant sector of the Indian economy, contributing to around 20 per cent of India’s GDP and employing approximately 58 per cent of the Indian Population. Today, India is the second largest producer of food in the world and if we can back up the agriculture sector, we can easily become the biggest player in the agriculture and food sector. Food security of the nation depends on the continued development of the sector.

A well developed Agri supply chain is an imperative for the growth of the sector and for food security. Integrated supply chains are one of the most powerful competitive tools in today’s globalizing business economy.

For agricultural products, successful supply chain development projects reduce not only the transaction costs but also the institutional barriers that decouple individual links in traditional distribution channels. They allow participants to achieve higher levels of service and to capture substantial added value thereby serving as leverage point both for economic growth and for poverty alleviation. This paper also draws on the experience of the Agri-Chain Competence Center to discuss the critical issues and step-by-step actions necessary to stimulate and support the emergence of supply chains in developing countries.

For this issue of SCM Pro, we take a close look at Agri Supply Chains.

We then move into “Developing the Business Case For Agri SCM”. A look at how we can create an Agri supply chain, not as a corporate CSR initiative but as a bottom line oriented and profitable venture that can add value to the nation, the citizen and the corporate involved.

The third issue we focus on is the “Agri Supply Chain—Critical Environmental & Social Impacts”. In the current economic climate, we need to assess the risks associated with sourcing the primary raw materials and examine what sustainable agricultural practice means. We also examine the tradeoffs between sustainability and the availability of economically viable raw materials. And finally the concept of “Triple Bottom line and ASCM” where we characterize the boundaries of the triple bottom line and the methodologies for reducing upstream impact.

Our next focus is “Building Supply Chain Partnerships”, where we look how customer oriented Agri supply chains have an enormous reciprocal effect on each of the successive entities involved in the chain including quality and/or freshness of products, reduction of product losses during storage and transportation, and how it helps entities in the supply chain generate higher value addition.

We move on to “Collaborating With Global Governments, NGOs, Brokers & Financing Entities”. A critical look at some of the external players who can affect the agri supply chains and the role they play in creating a vibrant Agri Supply Chain. We examine the key impact and concerns including carbon, fertilizers, soil fertility, land use, energy usage, farmer social impacts and food safety regulations.

And finally we look at Agri Supply Chain Risk Management. Due to the increasing spread of risks and massive structural changes in global and national Agri-food systems—farmers, agribusiness firms, and governments face new challenges in the design of resilient agri supply chain systems. We take a look at a conceptual framework and set of detailed guidelines for conducting systematic assessments of risk and vulnerability within agricultural supply chains - The Rapid Agricultural Supply Chain Risk Assessment developed by the World Bank.

Happy reading.

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lead story

Building a Viable and Sustainable Supply Chain An Efficient Agri Supply Chain requires specialised abilities for greater returns for all the partners.

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lead story

A

gri Supply chains are complex arrangements that link consumers, retailers, distributors, marketers (Or middle men as we know them), processors and primary producers. As goods and produce move across the supply chain, they accrue value. One broad classification of Agri Supply Chain is the pre-processing chain—from the farmer to the processor and the post-process chain—from the processor to the consumer. In India, the Agri Supply Chains is fragmented across both the sections.

The theory behind Agri supply chains inform us that the farmers,

brokers and processors associate themselves through a supply chain, coordinate their value creating activities with one another and in the process create greater value than they can when they operate independently. This in India is often a pipe dream.

Agri Supply chains create synergies in multiple ways. Agri Supply Chains expand traditional markets and increase sales volume for farmers. They have the potential to reduce the delivery cost and increasing the profits to the farmers. In addition they help identify untapped market segment for the produce. In this way, they allow chain members to charge higher prices.

Farmers in India can benefit by joining supply chains. When farmers join a supply chain, they can decide whether they will target their production for upscale, product differentiated markets (like MacDonald’s) or down scale, commodity markets—where the bulk of Indian agri produce are consumed. Agile and innovative Agri-Supply chains allow farmers to improve their profits, realize higher savings, adapt their crops, and supply chain alignment to changing market circumstances.

Similarly, competition among chains for good products from farmers, provides an opportunity for farmers to rise above a transactional relationship, creating better opportunities for themselves.

In India, the infrastructure connecting the farmer to the

mandi and there on to the other partners in the value chain is very weak. All of these players - the farmers, wholesalers, manufacturers, retailers all operate in silos.

Lack of adequate demand information compels the farmer to produce a crop first and then try to sell it.

The mantras that brought efficiency in manufacturing like—managing financial flow, supply-demand matching, demand forecasting, information sharing, efficient transport scheduling are absent from the Indian agriculture sector. The current Agri Supply chain in India has too many intermediaries who distort prices, exploit farmers and prevent produce and other goods from reaching places where demand exists The association of the farmer and the supply chain can take multiple forms and may include cooperative bodies, associating as a trading community, corporate, or contractual tie-ups. Well-designed supply chains are capable of realizing several kinds of captured value for their participants. Each sector of the agricultural sector—fisheries, meat and poultry, vegetables and fruits and cereals and grains need a slight modification in the supply chain, but the fundamental drivers of all these remain the same—an ability to understand consumer demand, identify opportunities and get the produce to the right place at the right time with the required quality.

In India, they all share the inefficiencies too.

Benefits of Agri Supply Chain

n

Improved margins for growers and farmers knowledge of demand and prices n Reduction of product losses during storage and transportation n Improved product quality and /or freshness n Improved safety of food products n Sales can be increased significantly n High value added products can be produced n Improved

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lead story Drivers of Agri Supply Chain India is a country with a population of 1.2 billion. This population contains the celebrated “bottom of the pyramid” as well as the top of the pyramid. These layers of the pyramid have different requirements from the agri sector. The middle and top of the pyramid are increasingly demanding ecological and socio -economic sustainability of agricultural production and are concerned with food safety. The bottom of the pyramid demands that the produce reaches them in daily schedule at lowest possible prices.

To develop an efficient Agri Supply chain requires specialized abilities—Capturing the consumer preferences as they evolve, packaging design, process integration and keeping the information flows among all the stakeholders smooth.

Experts advocate adapting one of the three general strategies for organizing Agri Supply Chain: Supply chain differentiation; integral chain and quality assurance. The exact strategy will depend on the local requirements and capabilities of the players.

If specific segments of consumers demand specific products, or the local cultural sensitivities demand that products be segregated —like vegetarian and non-vegetarian products cannot be mixed in a single transport schedule in India.

(Reliance retail had to move its non-vegetarian section to a separate shop!) Under such demands, supply chain differentiation is a good strategy.

As the income levels rise and distances between the producer and consumer increases, supply chain quality becomes very important. Especially for perishables like fruits, vegetables, fish and meat products. Development and implementation of quality assurance concepts in Agri Supply chain with 16 SCMPr

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suppliers and customers, and setting up tracking & tracing systems enable agro-processing companies and retailers to assure the quality and safety of food.

In addition as supply chains grow more complex with multiple layers, we need to look at supply chain reengineering. This rising complexity and the increased competition, will force all stakeholders to seek sources of competitive advantage which are based upon cost reduction, cycle time improvement while at the same

serves. After this, we can begin the process by examining the adjacent entities in the value chain – can we create a commercially, technically and workable collaboration between these entities. The other elements that need to get attention are: the supply chain should be sensitive to evolving customer preferences, skill development and creating a pool of supply chain specialists who can analyze, plan and implement a winning supply chain solution. This is a grey area

Jagruti works with the farmers directly, planning the produce, using information technology to iron out the kinks in the production and supply chain. time seek differing value-added and productivity gains and customer value driven initiatives.

There are quite a few innovative ideas from homegrown social enterprises in this sector. A good example is Jagruti Agro Tech, which focuses on three issues that hurt Indian agriculture—lack of farm inputs, lack of customer preference information, and lack of a viable supply chain.

Jagruti works with the farmers directly, planning the produce, using information technology to iron out the kinks in the production and supply chain, and connecting the farmer directly to the consumer, thereby increasing the revenue to the farmer and reducing the final price to the consumer.

Developing a viable Agri Supply Chain There are a few basic approaches to developing a viable agri supply chain. The first is an analysis of the existing system, its commercial viability, and the ecosystem it

in India with not too many institutes focusing on supply chain management, leave aside agri supply chain management.

Co-operation among the stake holders in the supply chain enables the retailer to convey the customer demand and preferences in time to enable the producer alter his produce to meet the demand. And the sum total efforts of each individual is higher than the individual efforts, getting safe, fresh products to the consumer at a lower price and at the same time ensuring better returns for the farmer.

The Indian farmer is suspicious of any development that disturbs the status quo, but is willing to accept the change if it can be shown to be beneficial. Mr. Radheshyam Chandak of Buldana Urban CoOp Credit society demonstrated this amply—under the “Gramin Godam Yojana” he has built over 300 godowns in Buldana and all of them are fully utilized by the farmers from the region.

Corporate Voice

CSC India Pvt Ltd

The IPH Story A

s is well known Indian economy till very recently was pre dominantly an agrarian economy. Even now over 60 % of India’s population resides in villages/ rural areas and is in some manner dependent on the agriculture sector.

It therefore, is indeed heartening that concerted attempts are now afoot to ensure that the Indian farmer/ grower is ensured optimal realization for his produce being sold both in the domestic and international markets. An important pre requisite for the same is availability of quality produce at the retail outlets/ market end which calls for an efficient and reliable supply chain which is in its infancy in India. It is also an established fact that a substantial part of our agricultural produce is wasted on account of poor handling and lack of required infrastructure both at the production and consumption centers.

Cargo Service Center India Pvt Ltd (CSC) as a logistics service provider recognizes the challenge and has since partnered Gujarat Agro Industries Corp Ltd (GAICL) for efficient and professional operations and management (to include marketing) of GAICL’s temperature controlled facilities namely an Integrated Pack House (IPH) at Naroda and a Center For Perishable Cargo (soon to be com-

missioned) at SVP International Airport in Ahmedabad.

CSC took over the responsibility for the IPH project in Feb 2010 and has since worked along with all stake holders to ensure an enviable YOY growth of 250 % for the handled Fruit and Vegetable (F&V) tonnages at the facility. IPH is a modern facility which is being managed by CSC in an efficient and professional manner.

CSC’s understanding of the markets (domestic and international) and stakeholder’s expectations enables it to provide solutions to its customers that ensure ever enlarging market share and profits for all its customers. IPH is a temperature controlled facility which is equipped to handle most of the customer demands to include pre cooling, sorting and grading of products, ripening using ethylene, storage under controlled temperature conditions, packaging, palletisation etc.

CSC leveraged its understanding of the International and domestic markets sensitivities with respect to quality and has since ensured compliances to the required quality standards/ protocols to include APEDAs registration of the facility.

APEDAs registration of our facility has enabled Indian F & V exporters from Gujarat to strengthen their international business

Integrated pack house for fruits and vegetables, Ahmedabad.

and secure new markets in Europe and USA besides SE Asia. During the current FY CSC has already handled over 7500 MTs of F & V enroute to the domestic and international markets.

CSCs contribution in strengthening the Supply Chain which has ensured reduced wastages and improved realization for all stake holders in the chain has consistently been acknowledged by our customers, both domestic and exporters . It is CSCs endeavor to consistently meet and exceed our customers’ expectations and continue to contribute in their growth.

lead story

A Business Case for A Management Agri Supply Chain Should not be restricted to the CSR initiatives of a few large corporates. It is time to develop a business case for ASCM.

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lead story

r Agri Supply Chain A

gri Supply Chains are struggling to attract investors in India. Any investment that comes in has shades of Corporate Social Responsibility (CSR) attached to them. It is true, Agri Supply Chain programs provide chain entities with that feel-good aura

of social responsibility – that they are doing something for the farmers and probably as a proof that they are model corporate citizens.

However, it’s time ASCM should develop a business case for the better returns for all the partners involved in the value chain.

But does a business case exist

for establishing Agri Supply Chain?

Liberalization, globalization and ever increasing consumer demand across the world create compulsive arguments for export of a wide variety of higher margin agricultural products from India. These include, but are not limited to organically grown products, fishery products, exotic fruits and vegetables, and offseason fresh fruits and vegetables to open up new opportunities for our farmers and agri-businesses.

The market for Indian agri produce is undeniable. What we lack is the ability to move the product from the farm to the fork – a serious lack of an integrated supply chain.

It is very clear that global market standards are very stringent. Consumers in developed countries and in urban areas in India and other developing economies demand fresh, safe and nutritional food, excellent quality and just-in-time delivery. This presents major challenges to Indian farmers and businesses since we lack state-of-the-art technologies and infrastructure.

These new developments puts pressure on the supply chains and any flaws in the system are magnified many times.

The supply chain of the day is a linear structure, where farmers, middlemen, processors, distributors and retail outlets forms a short-term partnerships independent from the other members of the SCMPr

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lead story chain. This is a highly inefficient model that restricts the player’s ability to respond to changes in supply and demand. Since none of these partnerships are for the longer term, they tend to limit productivity improvements and restrict innovation, creating wasteful processes and environmental degradation.

Supply chain management is a powerful tool to integrate farmers, processors, distributors and retail outlets. Through such integrated Agri Supply chains, producers in developing countries like India can get access to demand and price information to fine tune their production and processing. However, developing cross-border supply chains is complex, and requires information and expertise about how to build chains. For a cross border Agri Supply chain to reap its potential benefits, all the chain partners should commit themselves and ensure free flow of information across the chain. The advantages of an Agri Supply chain are numerous—like the reduction of product losses, increase in sales, reduction of transaction costs, a better control of product quality and safety and the dissemination of technology, capital and knowledge among the chain partners.

An efficient Agri Supply chain development not only benefits the immediate stakeholders but also stimulates economic, social and sustainable development in the country. Development of the institutional infrastructure for Agri Supply chain plays an important role in creating an enabling envi-

ronment for development. This might even take the form of a public private partnership (PPP) sharing experiences, risks and bottlenecks. In India, supply chain development is often hampered due to lack of support from the government and other statutory bodies.

Building Supply Chains Building a supply chain requires consistent commitment, competencies and resources of all the entities involved. This is not an easy task. The first step is to develop the right chain organization. And if

A transparent chain builds confidence among the players and ensures better collaboration and reduced costs. the chain extends beyond national borders, special care is required as differences in culture and business practices can have large influences in chain performance and the collaboration between the players.

An efficient Agri Supply chain development begins with an analysis of the existing flow of goods and information along the chain, and the ecosystem - product flow, exchange levels, forces affecting the operation of the supply chain such as governmental policies, etc. This will lead to the identification of potential supply chain partners, their

Consumer Goods Segment COGS % of revenue

Year over Year Change in COGS

Total Supply Chain Costs % of revenue

Profitability

Mature SCM Companies

46.50%

-3.20%

8%

23.40%

Immature SCM Companies

50.10%

2.80%

10%

10.90%

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function, role and contribution to the value chain.

It has been observed that the success of a supply chain depends on the chain leader. The chain leader should act as the supply chain manager. The chain leader has to be accepted by every member of the chain. If this does not happen, the chain is bound to create bottlenecks and eventually breakdown, with disastrous consequences for every one concerned.

The chain partners should set the parameters such as flexibility, efficiency, innovation, responsive-

ness, cost and information flow etc. that will be used to measure the performance of their chain.

Supply Chain Management and its Benefits The question we need to answer is—does all of these make business sense? An efficient Supply chain yields lower transaction costs and increased margins. but due to multiple activities and layers involved it demands a multidisciplinary approach and sustainable trade relations. Supply chain partnerships are based on inter-dependence, trust, open communication and mutual benefits.

The generic benefits of an agri supply chain are: Increasing of sales: Efficient chains can lower the total cost of goods, spurring demand and increase in sales.

lead story

Consumer

Retail Outlet

Processor

Agri Business

Farmer

Input to Farmer

Reduction of product losses in transportation and storage: As chains become efficient and players collaborate better, chains can attain just in time deliveries and reduce wastage.

Reduce risk: Stable agreements mitigates price volatility, whilst shared information will enable a more agile reaction to risks.

Improved productivity: As information flows are easier, they improve efficiency and chain partners can collaborate to finds ways to limit waste.

Access to new markets: Better insights into downstream needs and opportunities can better inform product innovation and help companies to grow footprints in new markets.

Transparency of the supply chain: A transparent chain builds confidence among the players and ensures better collaboration and reduced costs.

Improved access to capital: In addition to better cash flows and

stronger credit ratings, members can access new financing models that provide leverage from chain partners.

In addition a better ASCM will help dissemination of technology and techniques, capital and knowledge sharing among the partners A survey conducted by RIS Consumer Goods technology on supply chains quantified the benefits in terms of profitability and total supply chain costs. The results are compelling. Companies that employ advanced SCM practices: n Are approximately 40 per cent more profitable. n Have a 1per cent to 2 per cent advantage in total supply chain costs. n Experiencing decreases in cost of goods sold (COGS) as a percentage of revenue, as opposed to others that are experiencing year-over-year increases.

Yes, a well developed Agri Supply chain does have compelling business argument—it is not a mere CSR exercise. Time to invest!

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lead story

Environmental And Social Impact of ASCM

A Triple p p Bottom Line A

o r

Sustainable business practice needs to have Triple-bottom line (3BL)approach with emphasis on environmental, Social and financial performances.

A

ccording to the OECD, Sustainable development refers to development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Today, sustainability is also linked with the implementation of the three pillars of sustainable development or 22 SCMPr

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the so-called Triple-Bottom-Line (3BL) with the emphasis on environmental, social and financial performance for the improvement of quality of life of human being.

World Business Council of Sustainable Development (WBCSD) points out that sustainable development involves the simultaneous pursuit of economic prosperity,

environmental quality and social equity where companies aiming for sustainability need to perform not against single, financial bottom line but against triple bottom line.

Global warming and the concern with climate change have their impact on all aspects of our activities. The world is occupied with creating sustainable business prac-

o

a

h c

lead story tices. The growing attention paid on sustainable supply chain management in different sectors, is yet to percolate into the agriculture sector. This includes the Agri Supply Chains. The need of the hour is to explore opportunities available for agri businesses to enable consumers to buy fresher and more nutritious agri produce, invest in sustainable manufacturing and distribution systems and to develop procurement systems based on more sustainable forms of agriculture.

Because of globalization, supply chains involve greater use of transportation over longer distances, resulting in significant environmental damage and a larger carbon footprint. These concerns induce local behaviours that sometimes may not be socially sustainable.

These factors are urging stakeholders to consider sustainability - due to both rising concern of national and international regulators and an ever-growing attention of end consumers on sustainability.

The important factors in developing sustainable supply chains depend on the type of supply chain involved. A far more difficult and elusive parameter is the attitude and role of the individual business to take responsibility for social and environmental performance within supply chain. Trust and adherence to standards are both important to build more sustainable food supply chains. Cooperation among food

Environmental Impact of each stage of ASCM Input

Stage

Impact

Power & Water

Raw Material

Water, air and landfill

Fuel

Transport

Air

Water & Power

Manufacturing /Processing

Water, air and landfill

Fuel

Transport to warehouse

Air

Power & Water

Retail sales

Water, air and landfill

Fuel

Transport by consumer

Air

Nil

End of life

Water, air and landfill

manufacturers, retailers, NGOs, governmental and farmers’ organizations is vital in order to raise standards for some supply chains and to enable farmers to adopt more sustainable agricultural practices.

Intersection of Agriculture Supply Chain and Sustainability An Agri Supply chain starts from the primary inputs to agriculture and ends when the final produce is sold at the retail outlet. This entire chain is fragmented, and owned by multiple stakeholders, who at times may have divergent objectives. Given this state of affairs, we need to take into consideration the role of peasants, small farmers and consumers on improving sustainable supply chain management in the globalized market.

Sustainability in agri supply chain context means meeting the three challenges of the triple bottom line effectively.

Profit—creating avenues for revenue and the viability and competitiveness of the agricultural sector; Planet—promoting good environmental practices; People—improve the living conditions and economic opportunities in rural areas.

Productivity and sustainability The demand for food, feed and biofuel is growing at a very rapid pace. As population increases and as people in economies like India and China start consuming more, this trend will continue. It is estimated that the world population will be 9 billion by 2050, up from the current population of 7 billion. In addition, income will increase, changing the quantity and composition of food demand. The use of agricultural commodities in the production of biofuels will SCMPr

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lead story also continue to grow. Estimates indicate that by 2050, agricultural production would need to grow globally by 70 per cent and more specifically by almost 100 per cent in developing countries.

One of the fears expressed by many supply chain member is the cost associated with a green supply chain. Research however, has showed that, if we adapt sustainable practices, not only employment on agricultural harvesting is increased, but also on transportation, processing of feedstock, staffing in thermal conversion plant, and employment within the equipment supply chain.

Sustainability as Intersection of 3BL Performance

Sustainability

Environmental Performance

The business case for supporting sustainable supply chains Agri businesses must justify their investment in sustainable and 3BL initiatives to their shareholders.

Sustainable Agri supply chain will have a ‘business case’ if investment

Social Performance

Economical Performance

costs can be used to improve profitability either by generating products with higher consumer value, reducing costs or improving brand value. These investments may also be justified in terms of risk man-

What is a Sustainable Agri Supply Chain?

The UK Sustainable Development Commission has combined many different stakeholder views to produce an internationally applicable description of ‘sustainable Agri Supply Chain’ as those that: n P roduce safe, healthy products in response to market demands and ensure that all consumers have access to nutritious food and to accurate information about food products. n Support the viability and diversity of rural and urban economies and communities. n Enable viable livelihoods to be made from sustainable land management, both through the market and through payments for public benefits. n Respect and operate within the biological limits of natural resources (especially soil, water and biodiversity).

A chieve consistently high standards of environmental performance by reducing energy consumption, minimizing resource inputs and using renewable energy wherever possible. n Ensure a safe and hygienic working environment and high social welfare and training for all employees involved in the food chain. n Achieve consistently high standards of animal health and welfare. n Sustain the resource available for growing food and supplying other public benefits over time, except where alternative land uses are essential to meet other needs of society.

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agement, or Corporate Social Responsibility (CSR).

Endnote The sustainability and triple bottom line approach needs to move beyond the standards set by various stakeholders. Agri supply chain activities can help overcome barriers that prevent small and marginalized farmers from embracing these principles.

Small and marginalized farmers lack the knowledge, commitment or finance to make these improvements.

Another aspect that bears mention is the development of regenerative and resource conserving technologies such as integrated pest management, soil and water conservation, nutrient recycling, multiple cropping, water harvesting, waste recycling, and methods that improve agriculture productivity.

Making such technologies available and financially attractive for farmers is likely to become increasingly attractive to food businesses wishing to strengthen their own supply chain sustainability.

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

lead story

Building Supply Chain Partnerships

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lead story

Built a partnerships to strengthen Supply Chain integration and provide a sustainable competitive advantage for all the chain partners.

T

he Chartered Institute of Purchasing and supply defines partnership as an “commitment between two or more parties in a collaborative relationship to create value by striving to achieve shared competitive goals and operational benefit through a spirit of mutual trust and openness.” According to the Global Supply Chain Forum, “A partnership is a tailored business relationship based on mutual trust, openness, shared risk and shared rewards that results in business performance greater than would be achieved by the two firms working together in the absence of partnership.” Supply chain management emphasizes collaborative relationships between all the stakeholders within a supply chain. No supply chain can exist in isolation. As globalization and international trade grows, Agri Supply Chains need to be able to collaborate and extend their sphere of operations across a wider geographical region. An important aspect of implementing a cross border Agri Supply chain management is the formation of strong links between members of the supply chain, however much they are separated by geography.

This is easier said than done. For

a long time both practitioners and academics have touted the value of partnerships. The challenge is not identifying the partners; on the contrary, it is to find effective methods for developing the appropriate type of relationship with these partners. The trade environment today is characterized by increased competition, higher customer expectations, faster rates of change, and scarce resources.

Partnering provides a way to leverage the unique skills and expertise of each partner and may also “lockout” competitors.

Agri supply chain partnerships are essential for the progress and prosperity of the Indian farmer.

However, to establish and maintain genuine partnerships requires a considerable investment of time and resources. It is important to identify the key relationships for which partnering would create exceptional advantages, and to manage their other supplier and customer relationships with appropriate expectations. The requirements from an Agri Supply chain differ over the products, nature of customer demand and the time available. So Supply Chain partnerships too should reflect these requirements.

n A

selected range of supply chain activities within short time period and limited scope. n A broader range of elements over a longer time frame. n A firm commitment to a very wide range of elements over indefinite time periods.

Choosing the Partner When it comes to employing even a junior member, firms look to the possible long term benefits of the hire and not the next three months. In a similar way, the Agri Supply Chain partner needs to be evaluated for the longer term benefits that will accrue to the entire chain—not just the adjacent two links. This calls for a very high degree of understanding of the entire supply chain and its operations.

The first step in determining the best fit for the potential supply chain partner is to identify the attributes that will define the appropriate partners. Many traditional rules of engagement still hold true. These include quality, flexibility, process strengths and competencies, past track record, financial stability, and ability of the people involve. Many experts insist that the purchasing and supply organizations should look into these SCMPr

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lead story areas deeper before taking a call.

An example of this type of deep dive is, rather than just analyze the balance sheet and cash flow statements; the suggestion is to assess a supplier’s market share, trends within their industry, their longterm strategic plans, the quality of their management and their commitment to research. Each supply chain player needs to become so knowledgeable in supplier operations that they know as much about the players across the entire value chain as they do about themselves. This necessarily means that every member of the agri supply chain should share their business plans, capabilities, finances, people and processes with every other member. A tall order given the fragmented nature of the supply chain. The benefit of such sharing can be that as chains expand, these strengths will get each partner extra business, as members would prefer to do business with known entities than look for new partners.

To properly evaluate a partners potential, members of the larger supply chain must become aware of and consider attributes they may have ignored in the past. Jeff A. Tomko, purchasing senior manager for Honda of America Manufacturing in Marysville, Ohio is reported to have said: “The suppliers we want to add to our supply base should have more technology or system capability than we could ever imagine using in the immediate future” A very important factor that members of an integrated supply chain will look for in their partners is the flexibility to adjust to the ever changing customer demand —an ability to adapt to accelerated development. Where does the member’s role in the supply chain begin and end? How did the member contribute in other 28 SCMPr

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chains? And a lot more difficult parameter to quantify, but still very important, is management.

Evaluating an organization’s management style takes several visits to the members and a detailed research on the management, after which one can get an idea on these subjective traits.

Another often overlooked element in building a supply chain partnership is the cultural affinity between the players—players will find it easier to do business with people who share values, culture and styles.

Building on the Partnership It is easier to establish a partnership than maintain it. Partner-

in terms of key performance indicators, so that the outcomes of the partnership can be monitored and the components can be adjusted as needed. Also each partner must allocate sufficient resources to adequately support the relationship.

Endnote Today, more than ever, supply chain members are building collaborative relationships with their other supply chain partners in order to achieve efficiencies, flexibility, and sustainable competitive advantage. Collaborative activities, such as information sharing, joint relationship effort, and dedicated investments lead to trust and commitment. Trust and commitment,

“The suppliers we want to add to our supply base should have more technology or system capability than we could ever imagine using in the immediate future.” ships needs constant working upon and cannot be taken for granted. Once two members enter into a partnership, they need to operationalize it. For this they must establish and manage a number of components like a joint planning processes, free information flows, transparency in operating controls, communication links, and equitable sharing of risk and reward. Partnerships are strengthened by trust and commitment, streamlined contract style, broad scope of activities, and shared financial investment. It is important that the mutual expectations be expressed

in turn, lead to improved satisfaction and performance. And better performance leads to better top, middle and bottom line.

Such collaboration comes at a price. The collaborative relationships should provide benefits that compensate for the additional expense associated with such relationships. Eventually, members of the supply chain will decide the nature and extent of collaboration —it is not necessary that every member in the chain will have the same deep relationship. Each one will find a workable relationship, based on their exposure to the chain.

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Ma n a ge

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n anal ys n prac is ti n kno ce wled ge n surv ey n hum

March

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2013

sourc

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Vol. 1— No.2 `150

Sa lar y Sur Reportvey 2 Page... 013 42

Ensurin Food Se g curity

Evaluati ng Value fo how Agri Su pp r the pa rticipan ly Chain can evolve t to risk m anagem ent Reviewi ng RapA gRisk.

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In This Issue

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SCMP is a monthly magazine for Supply Chain Professionals for Enterprise Users as well as Service Providers. The magazine contains specialist artcles, news and information designed to update the readers on the developments in supply chain industry.

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lead story

Transforming the Agri Supply Chain A well established communication network, adequate infrastructure with the willingness to extend credit, research and development and enabling services like markets and mandis is few basic requirements for cross-border Agri Supply chain.

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lead story export their produce to the developed nations.

Public-Private Partnerships

I

ndian agriculture has the potential to create a dominant position for itself in the global markets. To do that we need to develop a strong, efficient supply chain, that can minimize the post-harvest losses and strengthen the link between farmers, middlemen, processors and retail outlets.

That said, Agri supply chains are not self forming. Developing Agri Supply Chains requires concerted effort and commitment from all chain partners. Agri supply chain development creates spin-offs that stimulate social, environmental and sustainable development within the region—employment generation, decrease of product losses, etc. Given the fractured nature of Indian Agri Supply Chain, govern-

ment support plays a very important role in the development of supply chains to create an enabling environment for agricultural sector development.

Agri Supply Chain development in India is hostage to these issues. Instead of encouraging free trade in agricultural products, governments resort to tariff and non tariff barriers to movement of agri products. To add to the confusion, these governments rarely encourage cross-border supply chain development with policy incentives. The WTO commitments on agriculture are nowhere near acceptance. The strict quality standards, subsidies and tariff barriers, food safety norms affect the developing nations ability to

Role of Government in agriculture markets is on the decline worldwide. It is recognized that efficient markets depend on producers and market functionaries deciding the selling of their produce. Corporate sector has taken over the market operations in most countries. Countries like South Africa and Brazil the government has begun withdrawing from markets. In South Africa, agricultural marketing has transformed from a controlled environment to a free system.

Encouraging public private partnership in supply chain is a good way for the government to intervene. Both parties contribute to the development of the Agri Supply Chain and risks are shared The public part can contribute by developing and testing new technologies, tools, models, and instruments to improve the performance of the supply chain. The private sector can leverage this knowledge and tools to bring in efficiencies in the supply chain.

Government’s Role in the Development of Agri Supply Chains n I dentifying

and making public information on agricultural trade bottlenecks. n Creating adequate infrastructure like transportation, communication and electricity. n Provide incentives for sustainable use of production resources. n Provide subsidies where needed in national interest. n Ensure the availability of information and statistics to facilitate market activity. n Assembling a body of knowledge on supply chains.

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lead story Cross-border chains Governments, private firms, research institutes, international organizations all play an important role in developing cross border supply chains. To develop cross border supply chains, governments need to create awareness among different stakeholders in the chain. Along side, governments need to create the institutional frameworks that will serve as the backbone. In some cases, the government may roll out pilot projects. The Rashtriya Krishi Vikas Yojana is an example of a pilot roll out. The results of the pilot can be used to fine tune the models.

Creating Institutional Frameworks India is on the threshold of a fresh agricultural revolution. If this comes about, the quantities which the chain will be required to handle is quite large. The capacity to clean, grade, pack, process and transport would have to expand at a very rapid pace to handle the additional quantities. Clearly, we need to create institutional frameworks to handle these surges. In India, these institutions are very weak.

Strengthening existing institutions or creating new ones can encourage stakeholders solve supply chain problems jointly. These institutions act as intermediaries and recognize the common interest of an entire sector of the economy. It stimulates demand for knowledge, and matches demand and supply.

Promotion of integrated markets in private/cooperative sector Under the APMC act, the State Government is the sole authority which initiates the process of setting up of a market commodities, which are regulated and for certain areas, in which the regulation is enforced. This denies the private players any role in the develop32 SCMPr

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ment of a market. This leads to a situation where, no player can assess the viability for setting up markets with state of the art facilities at competitive cost. We need to include private/corporate sector in setting up of alternative markets, which can operate in parallel to existing markets.

According to a release by the Ministry of Agriculture, The Govt. of Karnataka has inserted a new Chapter in its Karnataka Agricultural Produce Marketing (Regulation) Act, 1966, to provide for the establishment of ‘National Integrated Produce Markets’ to be owned and managed by the NDDB for the marketing of fruits, vegetables and

eas; direct integration of processing units with rural producers; building of marketing infrastructure, warehousing and marketing credit; and integration of market intelligence, extension, production planning and marketing efforts.

International organizations International organizations such as the World Bank, World Trade Organization, Food & Agricultural Organization, international research institutes, etc. too have a role to play in strengthening the Indian Agri Supply Chain. They can assist with special and sustainable interventions to upgrade crossborder trade.

An Indian cross border Agri Supply Chain, with linkages to global supply chains needs the active assistance of the Government. flowers. The amendment permits NDDB to set up integrated markets for fruits vegetables and flowers. All other States have to similarly amend respective APMC Acts to permit any person, organization or corporate body to set up ‘Integrated Agriculture Produce Market’ to provide to the farm producers the services of a) assembling, grading, storage, transport, packing and quality control; b) retailing, wholesaling and/ or e-trading and exports; c) marketing and or value additional; d) warehousing and pledge financing; e) marketing infrastructure; and f) marketing extension and intelligence. For the services so provided the owner/operator of the market be allowed to levy and collect user fee from the producer-sellers. The amendment will facilitate private/ corporate sector in developing integrated markets in producing ar-

Conclusion In promoting vibrant competitive Agri Supply Chain, Government needs to bring about reforms in existing policies, rules and regulations with a view to remove all impediments to a free market system. Liberalization of world trade in agriculture, under WTO, has provided new opportunities to the Indian farmer to access world wide markets for his output. However, to be able to sell in these markets, reforms have to be brought in agriculture sector to remove all barriers, whether legal or policy induced, which introduce inefficiencies and monopoly trends in the functioning of agricultural markets. An Indian cross border Agri Supply Chain, with linkages to global supply chains needs the active assistance of the Government. We, and our farmer friends look forward to it.

n analysis

n Practice

n knowledge

n Survey

n human resource

Supply Chain

Risk Management We review “Rapid Agricultural Supply Chain Risk Management (RapAgRisk)� by Commodity Risk Managament Group for your benefit.

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risk management

According to the report, an agricultural supply chain encompasses all the input supply, production, post-harvest, storage, processing, marketing and distribution, food 34 SCMPr

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Figure 1: Enabling

n Information flows: Which coordinate the physical product and financial flows.

The agri-food system includes farmers and a diverse range of firms, including backward-linked input suppliers and forward-linked intermediaries, processors, traders, wholesalers and retailers.

Major Risks An agricultural supply chain may be subjected to or experience multiple risks, with farmers and firms facing risks from different sources.

Table 1 portrays different types of risk that may be encountered.

According to the CRMG, the Agri Supply Chain Risks can be categorized as: Weather Related Risks: Periodic deficit and/or excess rainfall or temperature, hail storms, strong

Environment, Domestic and International

Global Markets

Support Services

Exporters

Retailers

Logistical

Processors

Financial

Intermediaries

Technical

Producers Input suppliers

Financial Flows

National Markets

International Flows

Conceptual Framework

service and consumption functions along the “farm-to-fork” continuum for a given product (be it consumed fresh, processed and/ or from a food service provider), including the external enabling environment. These functions typically span other supply chains, geographic and political boundaries and often involve a wide range of public and private sector institutions and organizations.

Modern agricultural supply chains are networks that typically support three major flows: n Physical product flows: Which are the physical product movements from input suppliers to producers to buyers to final customers; n Financial flows: Which are the credit terms and lending, payment schedules and repayments, savings, and insurance arrangements, and

Physical Flows

T

he Commodity Risk Management Group (CRMG) of the World Bank developed a methodology called Rapid Agricultural Supply Chain Risk Assessment (RapAgRisk). The primary objective of the RapAgRisk is to help decision makers understand the risk exposure of agricultural supply chain participants and to identify improved risk management strategies for selected commodity systems. RapAgRisk provides a system wide approach to identify risks, risk exposure, the severity of potential loses, and options for risk management by either supply chain participants, (individually or collectively) or by third parties (e.g. government). The essence of the assessment is to understand the wide range of ‘bottlenecks’ and ‘choke points’ that affect different participants and functions related to a given agricultural commodity system. This includes direct supply chain participants as well as private and public sector support service providers and the broader, enabling environment.

While much attention has been focused on the farmer and the risks they face—weather, pestilence, etc. the supply chain players are also exposed to several types of risk— primarily due to their interdependence.

Agri Supply Chain Framework

34

risk management

Figure 2:

Overall sequence of Analysis and Consultative Steps

Pre Field Assessment Preparation - Baseline data preparation - Supply chain & spatial mapping - Consultation scheduling - Initial meetings

Communication of Results - Completion of reports - Dissemination of results - Operational follow ups

Preliminary Field Exercises & Consultations - Arrival of team/team planning - Completion of baseline data gaps - Identification of tentative risks - Initial stakeholder plenary meeting

Assessment Wrap Up & Recommendations - diagonostics follow up recommendations - Identification ofm gaps

Final stakeholder Meetings & Wrap Ups - Identification of capacities, gaps - Prioritization of risks, vulnerabilities - Risk recommendations, follow ups Risk Analysis

Situation Analysis Risk Management and vulnerability assessment

The RapAgRisk framework mirrors the CASA framework of assessing Operational Risk in the financial services industry. winds, etc.

Natural Disasters (including Extreme Weather Events): Major floods and droughts, hurricanes, cyclones, typhoons, earthquakes, volcanic activity.

Biology and Environmental Risks: Crop and livestock pests and diseases, contamination related to poor sanitation, human contamination and illnesses, contamination affecting food safety, contamination and degradation of natural resources and environment, contamination and degradation of production and processing processes.

Market Related Risks: Changes in supply and/or demand that impact domestic and/or international prices of inputs and/or

Field visits & Stakeholders I nterviews - Field trips, government consultation - Stakeholder interviews - Risk identification, characterization (Interviews also cover risk management and vulnerability)

outputs, changes in market demands for quantity and/or quality attributes, changes in food safety requirements, changes in market demands for timing of product delivery, changes in enterprise/ supply chain reputation and dependability.

Logistical & Infrastructural Risks: Changes in transport, communication, energy costs, degraded and/or undependable transport, communication, energy infrastructure, physical destruction, conflicts, labor disputes affecting transport, communications, energy infrastructure and services.

Management and Operational Risks: Poor management decisions in asset allocation and live-

Recommendations and Suggested Follow ups

lihood/enterprise selection, poor decision making in use of inputs, poor quality control, forecast and planning errors, breakdowns in farm or firm equipment, use of outdated seeds, not prepared to change product, process, markets, inability to adapt to changes in cash and labor flows, etc.

Policy and Institutional Risks: Changing and/or uncertain monetary, fiscal and tax policies, changing and/or uncertain financial (credit, savings, insurance) policies, changing and/or uncertain regulatory and legal policies, and enforcement, changing and/or uncertain trade and market policies, changing and/or uncertain land policies and tenure system, governance related uncertainty (e.g., corruption), weak institutional capacity to implement regulatory mandates Political Risks: Security-related risks and uncertainty (e.g. threats to property and/or life) associated with politico-social instabilSCMPr

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risk management ity within a country or in neighbouring countries. Interruption of trade due to disputes with other countries. Nationalization/confiscation of assets, especially for foreign investors.

Risk Assessment The assessment is devised as a time-bound process to provide a ‘first approximation’ of major risks, vulnerabilities and areas requiring priority attention for investment and capacity building.

The guidelines assume a ‘rapid’ assessment process, involving a small study team and spanning a period of approximately three months.

(See Figure2).

Assessment Process The basic sequence for a RapAg Risk can be sub-divided into four major components: Component 1: Supply Chain Situation Analysis Component 2: Risk Analysis Component 3: Risk Management and Vulnerability Assessment Component 4: Recommendations and Suggested Follow-up Actions

Risk Analysis Once the supply chain situation analysis is completed, it is possible to focus attention on the risks and uncertainties that affect the focal agri-food supply chain.

With particular regard to the risk analysis and risk management dimensions, the sequence of analytical and consultative steps involves: Figure 3:

Figure 4: Heat Map of the Supply Chain Processes

Risk

Exposure 1

2

3

4

5

>10

C

B

B

A

A

8 - 10

C

C

B

B

A

5-7

C

C

C

B

B

3-4

D

C

C

C

B

0-2

D

D

C

C

C

financial services industry. Post assessment, a expected loss ranking matrix is developed. This essentially identifies each probable event along the probability of its occurrence—from highly improbable to highly probable, versus the impact of its occurrence—from negligible to catastrophic. This gives us an ability to identify potentially damaging events early on. All events that have a high probability and whose occurrence has considerable, critical or catastrophic impact need priority attention.

The second step is to develop a heat map of the supply chain processes. All risk events which have a well defined action plan, and has been tested, which has clearly identified individuals who are responsible for taking action are marked green. On the contrary, those which do not have any of these are colored red. And the others fall in between. The effort is to reduce the reds and increase the greens.

This is a tried and tested process in the financial services industry and hence can easily be adapted for supply chain risk.

Potential Severity of Impact

Probability of Event

Negligible Highly Probable Probable Occasional Remote Improbable

36 SCMPr

n Characterizing and charting key players in the supply chain and identifying critical flows/transactions of product, information, finance, and logistics, n Identifying and characterizing the range of risks faced by players along supply chain, with a focus on critical flows/transactions, n Ranking risks in terms of probability and potential severity—identifying the “key risks”, and their “expected losses”. n Identifying the existing exante and ex-post risk management strategies taken by players in supply chain (and/or external parties), n Assessing the apparent effectiveness, costs and benefits of the risk management strategies taken by players, and options to improve risk management effectiveness.

This stage of the assessment results in a number of key outputs e.g. a presentation of the risk profile of individual supply chain entities and the supply chain as a whole, as well as the documentation and summary of key informant interviews. For supply chain participants, perceptions about the risks they face should be sought in relation to their: n Sourcing of inputs (goods, services, raw materials), n Own production/processing of goods/services n Marketing of the ‘product’ (whether this be a finished or intermediary good/service).

The RapAgRisk framework mirrors the CASA framework of assessing Operational Risk in the

March 2013

Moderate

Considerable

Critical

Catastrophic

You can access the entire report at: http://siteresources. worldbank.org/ INTCOMRISMAN/ Resources/ RapidAgriultural Supply ChainRisk AssessmentConceptual Framework.pdf

n analysis

n Practice

M

Dr. Asad Ata is Research Affiliate at the Massachusetts Institute of Technology (MIT) Cambridge, USA. aata@misi.edu.my

n knowledge

n Survey

n human resource

Can India’s Rural Farms Flourish in World Markets?

uch of India’s vast agricultural sector is rooted in rural communities, and key to realizing its full commercial potential is connecting growers to world markets. That requires a much better understanding of the rural-agricultural supply chains that deliver produce from remote landholdings to consumers. The Malaysia Institute for Supply Chain Innovation (MISI) has proposed a research project to study these supply chains and to map out

a strategy for extending them beyond traditional markets.

A measure of the industry’s importance is the fact that India ranks as the world’s number one country in terms of the agricultural sector’s contribution to national GDP (18 per cent). An industry this size has a huge influence on consumerbuying patterns. There are more than 600,000 villages in India, for example, and rural households account for well over 60 per cent of the national demand for several product categories.

At the same time, the industry is shaped by long-established practices. Take, for example, the time-honored tradition of passing on family-owned farms to the next generation. Since the early 1970s, both the number of landholdings and the rural population in India have increased by the same amount: 1.76 per cent. This trend broadly reflects inheritance patterns across this huge country.

If these farms are to compete globally, they must perform profitably in a food products business that is SCMPr

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strategy subject to the unpredictability of consumer demand, the forces of globalization, and the liberalization of markets. That, in turn, requires integrated rural and urban supply chains that enable growers to play a bigger role in the global value stream.

One possible solution is to develop centers or hubs that connect agriculture, finance, and industry.

The hub concept is based on the idea that achieving true innovation requires a combination of linked activities that ultimately achieve a long-term impact. However, it is not clear how these entities would function, and what role they could play in helping agricultural communities to access global markets.

The centers would be defined by geographic areas with similar biophysical characteristics, production systems, constraints, opportunities, and intervention points. They would work locally to being together project partners including private-sector companies involved in agricultural inputs, supply and marketing service providers, processing facilities, equipment manufacturers, public-sector research and extension agencies, universities, cooperatives, water management associations, Non-Governmental Organizations (NGOs), and farmer groups.

Such centers already exist in various forms, but they tend to lack certain important linkages in areas such as procurement, and their economic viability and sustainability remain a challenge. However, they have helped farmers to connect with markets and achieve more transparency in business.

But before such solutions can be put into practice, it is necessary to unravel how existing supply chains have evolved and operate.

MISI’s proposed research focuses on a number of critical structural and operational constraints that impede the performance of ruralagricultural supply chains in India.

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Infrastructural issues The lack of organized and coordinated logistics services is a major impediment to the development of a world-class agricultural industry.

In India, freight transportation is dominated by an extremely fragmented trucking industry. It is difficult to manage the plethora of carriers required to handle shipment volumes, and poor roadways compound the situation. The country has one of the world’s largest road networks, yet fewer than half of these links are paved. And while national highways account for less than 2 per cent of the total road network, they carry 40 per cent of the traffic.

Finance mechanisms Another important factor is the accessibility of finance. Microfinance loans have become a popular mechanism for financing small

ships that bind stakeholders together. The researchers will explore how such links drive trust between trading partners.

Communications The availability of communications technology that is both affordable and relatively easy to adopt influences the success of rural growers.

The use of mobile devices to connect upstream and downstream supply chain partners is an area of particular interest. With more than 4 million new mobile connections being established every month in rural India, this technology is a key factor in the future growth of agricultural markets.

The role of women Nearly 70 per cent of Indian women in rural areas are employed in agriculture and are responsible for

Nearly 70% of Indian women in rural areas are employed in agriculture and are responsible for 60-80% of food production. businesses in developing countries.

However, this solution is not a silver bullet, and other sources of capital are needed. The Reserve Bank of India’s latest Financial Stability report shows that around 4.6 per cent of agricultural loans and 4.8 per cent of MSME loans were non-performing as of March 2012. The proportion jumped by 1.2 to 1.3 percentage points over the past year. The lack of financing options means that farming communities often use loans for purposes other than underwriting activities that generate income.

Interrelationships Two important components of rural-agricultural supply chains are the formal and informal relation-

60-80 per cent of food production.

Women play a major role in animal husbandry and horticulture, primary sources of income in rural communities. Moreover, they participate in local food networks as producers, wholesalers, brokers, farmers, market directors, and heads of feeding programs for the poor. Understanding how gender influences the development of regional agricultural food networks is critically important.

Unlocking the growth potential of India’s agricultural communities by improving the supply chains that serve them not only will benefit the national and regional economies, but also could provide a significant boost for the country’s logistics industry.

38

rural market Dr. Nitin Joshi writes about the challenges faced by firms reaching out to rural customers.

T

he Biggest Challenge for a Corporate India or even MNC is to reach India’s rural Consumer, due to its geographically disbursement of masses and the method in which its rural consumer base is spread. Rural consumer are crucial for any companies to meet their desired business objectives.

Villages in India may have population of says 5000 plus or sometime even less, with decent consumer base, but in some cases the number of families per village could be less than 100. The toughest challenge is to design distribution mechanism which will be cost effective and make business sense for the organizations.

India’s food industry has been witnessing explosive growth and there has been a big improvement in trying to get the more out of the agricultural industry. The concept of “Farm to Plate” has been

re-coined as “Plate to Farm” to ensure that it is equally important even for the farmer to produce what customer want. With the tempo of development getting accelerated on rural India, coupled with the increase in purchasing power of the customer, the role of rural supply chain design become a very important aspect in today’s business scenario.

Rural supply chain if nurtured properly can be one of the best links in improving competitiveness there by reducing uncertainty and improving service levels for rural India market. There is a need to focus on the issue of rural supply chain in real sense by using the best of the brains in the industry and by working with the right decision tools. The results may not be immediate but one can be sure of big returns in the times to come.

Today’s uncertainty, volatility and dynamic changes in the market place have forced the organization to look beyond their traditional and established markets. The tier I and tier II cities of India or say district level and to a large extent other large villages have been catered by many companies be it FMCG or consumer durables. The

Managing Complex

Chain SCMPr

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rural market penetration of mass media such as television and other satellite channels of communications have exposed rural India to outside world.

Aspiring customers are looking forward for marketers who are responsive to their needs and this indicates that the organization who wishes to lead has to have a speed.

But the real challenge is to reach out in a cost effective way and creating value for customer. Lack of infrastructure availability, deployment of technology, managing the support system which enables the system to work will be all similar issues, but the bigger idea is can we have a different design which can help organization meet their objective and customer fulfill their need.

Rural supply chain is that link that connects rural India to urban India. This chain when seen from the urban marketers end should be focusing on the customer in rural India and while seen from rural marketers end, should be focusing on the urban customers. The vehicles which carry vegetables to the towns or cities have to be back empty transferring the cost to the farmer. Many a times trucks have to come back empty from rural part as there is no coordination and understanding amongst stake holders. Use of technology could really reduce this problem and win–win situation could be created.

People will have to use the concept which is being used by many cabs operators in metros.

Many a times rural consumer fails to seek a product they have come across on the television advertisement. Similarly many companies have reach out these markets, but cost management is still issue for many. The transparent and cost effective rural supply chain that can be utilized as the backbone for material and information exchange amongst various stakeholders both in the rural and urban markets is an only viable answers to these issue.

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There are several roadblocks that make it difficult to create an effective supply chain system. Marketers encounter a number of problems like dealing with physical distribution, logistics, proper and effective deployment of sales force and effective marketing communication when they enter rural markets. The major problems are listed below.

Transportation and warehousing Transportation is one of the biggest challenges in rural markets.

As far as road transportation is concerned, about 50% of Indian villages are connected by roads.

However, the rest of the rural markets do not even have a proper road linkage which makes physical distribution a tough task. Many villages are located in hilly terrains that make it difficult to connect them through roads. Most marketers use tractors or bullock carts in such areas to distribute their products. Storage and Warehousing is another major problem in rural areas, as there is hardly any organized agency to look after this issue. The services rendered by central warehousing corporation and state warehousing corporations are limited only to urban and suburban areas. The problem of storage continues when it comes to perishable material. Farmers who bring fresh vegetables to the markets are forced to sell off at a price decided by the market and have no option of postponing their sale.

Lack of storage space and poor material handling systems create more wastage.

Ineffective distribution channels The unorganized distribution chain and a large number of intermediaries cause an cost escalation and administrative problems.

These middle men who make a

good margin in bargain deny the right price for the grower. And when it comes to perishables products, this conventional arrangement and more man handling of the material creates a lot of wastage. Usually the products are packed in gunny bags which help them to keep the material together, but dumping of bags on one another causes more wastage.

Delivering Value Understanding of values and creating the same at every end of the value supply chain is a big road block. Right kind of transport mix, packaging and much other value addition process is must to identify the right value for all the stakeholders in the supply chain.

Seasonal demand Demand may be seasonal due to dependency on agricultural income. Harvest season might see an increase in disposable income and hence more purchasing power. So this creates an uncertainty on timings and demand forecasting for the companies aspiring to sell their products in this market.

The concept of “Farm to Plate” has been re-coined as “Plate to Farm” to ensure that it is equally important even for the farmer to produce what customer want.

With the tempo of development getting accelerated on rural India, coupled with the increase in purchasing power of the customer, the role of rural supply chain design become a very important aspect in today’s business scenario.

40

rural market Dispersed markets Rural population is highly dispersed and requires a lot of marketing efforts in terms of distribution and communication. Rural population is scattered across 7 lakh villages.

The entire points discussed above offer challenges to the any marketer trying to market his product. Marketer cannot afford to ignore the huge opportunity existing in rural market. He tries to identify solutions to these marketing problems.

Redesign your Rural Supply chain Redesigning the Rural Supply Chain strategies is the need of the time these companies and marketers should seriously look into.

Along with the offering we have for a growing market we need to look into the challenges of setting the distribution network such as infrastructure, human resources, warehousing site selection to hiring the truckers. These challenges cannot discourage organizations from expanding their base in the nation. They should in-fact encourage them to start a fresh, understanding the pains of the chain so that value could be created at the customer end. It is important that if the companies start to navigate the obstacles now, it will be definitely in a position to reap the benefit when the economic reforms finally take shape to align them to support the growth of this large consumer economy.

The warehouse The concept of very large warehouses has been discussed quite often but the fact is in India we have many small warehouses. The lack of amenities, a latest material handling equipment and failure of space optimization in these warehouses in turn increase the cost

of managing the material their by increasing the over cost of storing the material. Existing warehouses tend to be located close to a base of customer but they carry inventory only to fulfill that base of customers. Manpower is the only resource which is used extensively across rural business.

The modern warehouse properly designed for Indian conditions and markets could actually help improve rural supply chain efficiencies. Material is money which is a very important from business point of view is to be lived in by the staff working with the material.

of the service process domain. The challenge lies in getting right set of people to associate with your redesigning of the chain.

Operations management

Action Plan

The concepts of operations management have to implement in the rural supply chain domain. The concept of quality management, waste minimization, process design,

There is a need to create compelling environment and the industry leaders will have to drive the system. Understanding customer in the rural market and making your

Distribution Network The organization will have to work out on the design of the distribution system network which has to consider the real challenges of the Indian transportation infrastructure. Not many have large fleet of trucks or load carrying commercials vehicles. Lack of refrigerated trailers on the road is again a big obstacle which hinders the flow of perishable material.

Understanding customer in the rural market and making your strategy a customercentric will be adding value to the overall supply chain ecosystem. will play a vital role in the supply chain. Productivity improvement tools or problem solving techniques like cause and effect, questioning techniques should be used on day to day basis for the betterment of the processes. Managing high volume effectively could increase the profitability of the warehouse and thereby reduce the overall supply chain cost.

Choosing the Right Service provider It is important to have a good warehouse, technology, and education but the most important stakeholder in the supply chain is the service provider or the people who are part

strategy a customer-centric will be adding value to the overall supply chain ecosystem. If policies can be drafted keeping the end customers in mind. Education by way of vocational training will reduce the skill gap in the industry especially in the bottom of the chain. There is also a need for large investment by organizations to create the basic infrastructure that will enable the entire supply chain eco system work more efficiently and effectively.

Supply chain process design, use of technology and focus on quality function deployment are the need of the hour for the rural supply chain as well.

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n analysis

n Practice

n knowledge

n Survey

n human resource

Salary Survey report 2013 In an exclusive to SCMPro, Logistics Executive shares its compilation of Salary Survey Report 2013 that covers the entire spectrum of salary bands and geographical territories in India.

Methodlogy The research and information contained within this report has been compiled by Logistics Executive from research undertaken and intelligence gathered in the course of its everyday business activities. Logistics Executive was founded in 1999 and has offices in India, Australia, Singapore, Hong Kong, China and Dubai.

Information contained within this report is compiled from data contained with our extensive database, business acquired intelligence and regular research surveys, which includes the Global Employment Market Report (now in its 7th year). The Global Employment Market Report is an online survey of approximately 10-15 minute duration and was emailed to more than 55,000 people within the Supply Chain & Logistics Industry in late 2012. About 4,550 respondents completed the survey.

Further to this, Logistics Executive undertook a series of interviews with HRD‘s and HR Personnel validating this data and this information has been incorporated into the final document produced.

Sources for this particular research include: Human Resource Director Interviews Business briefing provided by CEO’s of leading 3PL companies Logistics Executive’s Employment Market Report data from late 2012 Logistics Executive’s business intelligence database Candidate and Client interviews (conducted by Logistics Executive) Note: The results are purely indicative in terms of overall trends within the industry.

n n n n n

About Logistics Executive Logistics Executive is an International Specialist Executive Recruitment and Business Consulting Company. The company offer marketleading, global connections and drive business performance in the Logistics, Supply Chain, Transport, Freight, Aviation, Manufacturing, Retail, FMCG, Pharma-Healthcare and Resources sectors by providing Executive Recruitment, Interim Management and Business Consulting Services. International Talent engages them as a trusted, networked specialist to find Executive Positions in Sales & Marketing, Operations, Procurement, Finance, Human Resources, Logistics and Supply Chain Management. Specialising in Logistics & Supply Chain Executive Recruitment and Training, the company has an active database in excess of 115,000 logistics and supply chain professionals.

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salary survey

A Quick Insight to Current Salary Trends in India

L

ogistics Executive is a global Human Resources and Recruitment Consultancy operating in India since 2010. In the two successful years since, the company has established its place in the Indian market with a professional reputation and commitment to providing a valued service and expertise in talent management and acquisition strategies for both local and international clients.

Following the inaugural launch of the 2012 India Salary Guide, Logistics Executive, in conjunction with SCMPro have released the second edition of the 2013 salary guide report for the Indian Supply Chain and Logistics market. We thank our clients and the market place as this report has been compiled with their goodwill, covering a breadth of salary bands and geographical territories in India with a focus on Supply Chain and Logistics.

Much of the analysis in this report comes from the Logistics Executive Global Survey, released in February 2013, in-depth interviews with our clients and statistical reference to our candidate database.

Logistics and Supply Chain– India’s future growth driver Despite downwards revisions to India growth projections (now 4.5%) and challenges in the Indian economy seen throughout 2012, the Indian Logistics and Supply Chain sectors continue to forge ahead at growth pace well in excess of its regional neighbors. And with the global economy being re-shaped, so is the distribution of wealth and this is clearly evident in the Indian domestic

economy. And as world trade grows, so do the challenges for the transportation and logistics industry. More people means more production and with global trade in goods and services is likely to rise more than threefold to US$ 27 trillion in 2030 India is ideally positioned to be a significant beneficiary.

The Indian RBI certainly thinks so and is actively looking to spur on investment and growth with interest rates reduced this month for the second time in just three months.

India’s growth has been hurt by a variety of factors in recent months, not least the sharp slowdown in its manufacturing and services sectors. At the same time, foreign investors have been wary of entering the market amid delays in key reforms all leading to concerns that its growth may slow further in the coming months.

The central bank said that creating an environment conducive to investment was key to reviving India’s economy. “The foremost challenge for returning the economy to a high growth trajectory is to revive investment,” the RBI said in statement released on March 19.

Not withstanding the events of 2012, the demand for skilled talent in the Supply Chain and Logistics sector remain high. With an emphasis on improving supply chain efficiencies and eliminating waste, the need for a higher level of skilled Supply Chain professionals has continued to drive up the top end of salary bands with limited supply of internationally experienced change-agents.

However, this trend is not consistent

across all functions and positions.

In 2011-2012, we saw that despite a mild slow down in the rate of economic growth, there had been significant increases in salaries, much of which created pain for organisations as employees jumped for sizable increments.

Fast forward a year and with continuing mild growth being experienced and a degree of uncertainly many parts of the Supply Chain and Logistics sector, the heat is coming off salaries and employees are starting to place a greater level of importance on career development and the company they choose to work for.

It’s a welcomed development, although the sector is still losing out in the attraction stakes.

The starting position of transportation and logistics companies couldn’t be better. Offering varied types of work, often in international and cosmopolitan working environments with the ability to transfer those skills offers employees truly global career prospects. In real terms, that should translate into popularity with job seekers. But the reality is somewhat different.

The transportation and logistics industry is confronted with an image that’s less than ideal. Work in warehouses, on ships or in trucks and trains tends to be associated with unpleasant working conditions and a less than attractive career path.

Human Resources must play a leadership role There is no doubt that good employee’s aren’t just a commodity anymore; they’ve become a scarce resource.

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43

salary survey

Position

Industry / Supply Chennai Chain Management Mumbai Delhi

MD / GM Logistics

Position

MD / GM Logistics Supply Chain

Industry / Supply Chain Management SCMPr

Supply Chain VP / Director

Logistics Director Logistics Director

Pune

Hyderabad

Chennai

75 - 95 Delhi

Bangalore

Pune

75Hyderabad - 95

75 - 80

75 - 80

50 - 75

75 - 85

45 - 75 80- 95

7530 - 80-

75 - 80

- 75 40 -5075

25 - 35

22 - 45

24 - 45

45 - 80

30 - 50

40 - 75

25 - 35

22 - 45

24 - 45

22 - 60

30 - 45

25 - 40

25 - 50

25 - 35

18 - 24

7 - 18

14 - 18

8 - 18

8 - 18

5-8

4 - 10

5-8

2-5

2-6

2-4

6 - 11

6 - 15

8 - 12

3-6

3-6

2-6

40 - 575 -7

25 - 50

25 - 50

25 - 40

2-4

10 - 15

10 - 14

9 - 14

9 - 18

8 - 13

8 - 13

Mumbai

VP / Director75 - 95

22 - 30 60- 65

75 - 85

Bangalore

2530 - 40-

50 45

25 - 50

30 -2565 - 35

Operation / Warehousing Operation / Warehousing Regional Logistics Manager

Regional Logistics Warehouse / DC Manager

Manager 6 - 12

5-8

Warehouse/Operations Executive

2-6

2-5

Lean / Quality / Six Sigma Manager

8 - 16

8 - 15

Warehouse / DC Manager

Warehouse/Operations Executive Logistics Specialist 5-8

4-6

Procurement / Purchasing

Lean / Quality / Six Sigma Manager

Procurement VP / Director

Logistics Specialist Senior Procurement Manager

40 - 75

30 - 45

12 - 20

10 - 15

Senior Quality Manager

8 - 20

8 - 12

Sourcing Manager

7 - 15

6 - 14

Procurement / Purchasing

Procurement Purchasing Manager

17 - 22

18 - 524 - 12

6 - 11

6 - 15

2 - 65 - 8 8 - 16

9 - 18

8 - 15

7 - 11

18 - 25

22 - 30 8 - 20

12 - 20

12 - 16

12 - 20

7 - 12

5-9

7 - 15 5 - 12 5 - 95 - 9

Manager

Purchasing Officer

Inventory Manager

Inventory Controller Inventory, Planning

Demand/ Supply Supply Chain Consultant

530 -9

2-5

2-5

12 - 20

5-9

5-8 6-9

5-7

3-5

2 - 55 - 7

1-5

3-7

Consulting &Project Management

Planning12Head - 35

12 - 30

8 - 12

12 - 16

9 - 12

5-7

5-7

5 - 75 - 7

Sales & Marketing

Inventory Sales Director

Controller

5-9

5 - 10

5-9

5-7

5 - 59- 7

5-9

5-8

5-7

2-5

1-4

2-4

20 - 25

16 - 25

18 - 25

10 - 17

10 - 15

7 - 11

6-9

5-7

7-9

5 -5 7

-9

8 - 12

2-4

5-7

2 - 35- 5 2-5

5-9 5-8

9-6 12 - 9 4-6

3-5

30 - 50

3 - 30 7 - 75

30 -1 45-

10 - 14

12 - 16

12 - 15

Regional Brand Director

15 - 35

15 - 30

15 - 35

15 - 22

Supply Chain Consultant 15 - 25 Regional Brand Manager

14 - 22

12 - 15 35- 25

1012 - 20-

7 - 12

6 - 10

7 - 12

12 - 19

8 - 10

2-5

12 - 15

Project Implementation Manager

7 - 11

2-6

30 - 75

Territory Sales Manager

9 - 10

8 - 18 20- 25

3-5

Area Sales Manager

Consulting &Project Management

12 - 18

7 - 11

15 - 25

8 - 12 10 - 14

5-9

8 - 15 7-9

14 - 26

22 - 35

8 - 13

5-7

6 - 14

23 - 45

25 - 50

5 -98- 14

6-9

15 - 20

National Distribution Head

25 - 40

10 - 15

20 - 30

7 - 12

9 - 17

16 - 25

20 - 30

18 - 25

8 - 12

2 - 26- 6

10 - 17

10 - 12

12

5 - 12

20 8 - 25 - 12

16

20 - 35

Inventory Manager

1-4

12 - 15

General Manager Transport

Transport Controller

10 - 15

5-8

13 - 20

14 - 16

2-4

5 - 10

- 45

25

12 - 20

8 - 18

17 - 522 -8

8 - 13

1312 - 18-

Project Manager

Commodity Manager Zonal Distribution Manager

10 - 14

1518 - 25-

7 - 14

Planner

25 - 50

- 10 20- 19

12 - 19

/ Forecast Manager

6

3-6

25 - 15 35- 35

Project Implementation Manager Supply Chain Manager

Planning Transport

10 -4 15-

40 - 75 5-9

8 - 12 3-7 & Demand

8 - 15

8 - 20

5 - 12 8 - 18

25 - 35

Commodity Manager

3 -2 6-5

25 - 50

Supply Chain Manager Planner Purchasing

5-8

40 - 75

Demand/ Planning Head SeniorSupply Quality Manager

Sourcing Manager

4 - 10

9 - 17

6 - 12

2-4

Planning / Forecast Manager

8 - 18 2-6

2-5

Inventory, Planning & Demand

18

2-5

5-9

Senior Procurement Manager

57 - 8-

2-6

VP / Director5 - 9

Purchasing Officer

14 - 18

5

8 - 15 9 - 14

5-9

7 - 14

12

- 14 -1020 10 - 13

5 - 12

15 - 20

5-7

5-7

5-7

11 - 14

8 - 11 12- 14

8 - 12

9 - 10

8 - 10

2-5

5 - 27- 5

3-5

5-7

3-5

3 -257- 40

2-6

2-5

2-5

15 - 25

8 - 15

8 - 15

13 - 18

9 - 14

10 - 14

12 - 15

10 - 12

10 - 13

20 - 30

15 - 20

15 - 20

25 - 40 9 - 11

30

22 -830 - 15

5-9

15 - 25

9 - 11

13 - 22

13 - 22

13 - 17

15 -1035 - 15

6-9

5-8

10 - 19

Project 12 - 20 14 -Salary 16 in Lakhs 13 - 20 Salary dataManager is shown as a range from low – high and is displayed as an Annual Base Per Annum.

Additional benefits such as annual bonus, company vehicles or travel allowances may apply. (Cr) = Crores.

Transport

General Manager Transport

20 - 35

Supply Chain & Logistics 2013 India Salary Survey Report

18 - 25

20 - 30 2

National Distribution Head

25 - 50

22 - 35

23 - 45

14 - 26

15 - 25

15 - 25

Zonal Distribution Manager

12 - 16

9 - 12

10 - 14

9 - 12

11 - 14

11 - 14

5-7

5-7

5-7

4-6

2-5

2-5

Sales Director

30 - 75

30 - 50

30 - 75

30 - 45

25 - 40

25 - 40

Area Sales Manager

12 - 15

10 - 14

12 - 16

12 - 15

9 - 11

9 - 11

Regional Brand Director

15 - 35

15 - 30

15 - 35

15 - 22

13 - 22

13 - 22

Regional Brand Manager

15 - 25

14 - 22

15 - 25

10 - 20

13 - 17

10 - 15

Territory Sales Manager

7 - 12

6 - 10

7 - 12

5-9

6-9

5-8

Transport Controller Sales & Marketing

Salary data is shown as a range from low – high and is displayed as an Annual Base Salary in Lakhs Per Annum.

Additional benefits such as annual bonus, company vehicles or travel allowances may apply. (Cr) = Crores.

44 SCMPr

March 2013

Supply Chain & Logistics 2013 India Salary Survey Report

2

Position

salary(LSP/3PL’s) survey Logistics Service Providers Mumbai

Chennai

Delhi

Bangalore

Pune

Hyderabad

75 - 2.0 (Cr)

50 - 1.5(Cr)

75 - 2.0 (Cr)

50 - 1.5 (Cr)

50 - 1.0 (Cr)

50 - 1.0 (Cr)

General Manager

22 - 35

22 - 30

20 - 35

22 - 30

20 - 30

20 - 30

Regional Manager

16 - 20

12 - 16

14 - 20

10 - 14

8 - 16

9 - 12

6 - 10

4-7

5-8

6-8

6-8

5-7

VP / GM / Sales Director

41 - 50

25 - 35

35 - 45

35 - 45

30 - 35

25 - 28

National Sales Manager Regional Sales Manager / Territory Manager BD Manager (3PL)

30 - 35

17 - 24

30 - 35

17 - 35

18 - 23

25 - 28

18 - 22

12 - 15

18 - 20

11 - 15

13 - 15

7 - 10

12 - 15

8 - 12

10 - 15

8 - 12

8 - 12

8 - 10

BD Manager (Freight)

7 - 15

6 - 13

7 - 14

7 - 12

6 - 12

6 - 11

Key Account Manager

6 - 13

7-9

8 - 13

8 - 13

6 - 10

3-6

Sales Executive

4-7

3-6

3-6

4-5

2-5

3-5

Marketing Manager

4-7

4-7

3-5

4-7

2-5

3-5

CEO / MD / Country Manager

Branch Manager Sales & BD

Operations 3PL Contract Manager

30 - 45

25 - 30

35 - 40

22 - 32

20 - 30

18 - 30

Warehouse/Operations/DC Site Manager

8 - 15

5-8

5 - 12

6 - 10

4-9

4-8

Warehouse/Operations Executive

5 - 10

4-8

4-8

5 -9

3-7

3-7

3-8

3-5

3-7

2-5

2-5

2-5

10 - 16

6 - 10

6 - 14

6-9

6-9

5-8

2-4

2-4

2-5

2-3

2-4

1- 3

Project Implementation Manager

13 - 19

9 - 12

9 - 14

9 - 13

8 - 12

8 - 12

Project Manager – WMS/TMS

18 - 22

14 - 19

14 - 20

12 - 15

10 - 12

12 - 14

General Manager Transport

35 - 50

20 - 30

30 - 40

20 - 30

20 - 32

20 - 30

National Transport Manager

25 - 35

25 - 30

25 - 35

20 - 30

20 - 30

20 - 30

Line-haul Manager

18 - 25

15 - 20

15 - 24

12 - 18

15 - 20

12 - 15

National Compliance Manager

8 - 12

6 - 10

6 - 10

5-8

5-8

5-8

Site Manager

9 - 15

8-12

8 - 14

7 - 10

7 - 10

7 - 10

Fleet Manager

7 - 10

6-8

6-8

5 - 10

5-7

5-8

4-6

3-6

3-6

3-5

3-5

2-5

Import/Export Manager Air Freight / Sea Freight Manager Shipping Clerk Project Manager

Transport

Workshop Manager

Salary data is shown as a range from low – high and is displayed as an Annual Base Salary in Lakhs Per Annum.

Additional benefits such as annual bonus, company vehicles or travel allowances may apply. (Cr) = Crores.

Disclaimer: Logistics Executive is committed to the highest standard and quality of information and every attempt has been made to present up-­‐to-­‐date, accurate information. The information contained herein is general in nature and is not intended as, and should not be construed as professional advice provided by Logistics Executive to the reader. While every effort has been made to offer current and accurate information, errors can occur. Much of this information is obtained from records that for reasons of privacy are confidential. This information is provided as is, with no guaranty of completeness, accuracy, or timeliness, and without warranty of any kind, expressed or implied, including any warranty of performance, merchantability, or fitness for a particular purpose. In addition, changes may be made in this information from time to time without notice to the user. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of additional factors if any action is to be contemplated. The reader should contact a professional prior to taking any action based upon this information. Logistics Executive assumes no obligation to inform the reader of any changes in law, business environment, or other factors that could affect the information contained herein.

Supply Chain & Logistics 2013 India Salary Survey Report

SCMPr

March 2013

45 3

salary survey So it becomes a question with strategic implications for every aspect of the business. That’s why the first priority needs to be making sure that human resource management is a strategic partner of the C-suite, rather than a supporting function.

Critical to this will be ensuring that we attract the inflows of talent needed to sustain the growth of this valuable sector –and much of this rests with addressing the image problem. The sector’s poor image came up again and again in the responses from our EMS Report.

According to the National Skill Development Organisation of India, the transportation and logistics sector employed around 7.3 million people in 2011. But the number is expected to increase to about 25 million by 2022. Transportation and logistics companies will need to find more than 17 million more workers over the next 10 years. That’s an enormous challenge, particularly considering that the logistics sector is already struggling to find workers with the requisite skills to handle the entire supply chain.

With many transport jobs considered to be low-paying jobs. Higher skilled logistics roles with good pay and advancement potential don’t even make the radar screen of many talented graduates.

Training integration and investment is critical The problem is compounded by a dearth of training programmes in many areas and an insufficient focus on learning and development within individual companies. There is a greater need for integrated talent and training programs. This was a key driver behind Logistics Executive partnership with MILE Academy offering the ability to manage the full life cycle of gradate talent on behalf of companies.

There’s no doubt that investments and commitment will be needed. Logistics companies in India need to invest heavily in training, development and education for their young workforce. Long term the impact of this investment will be to increase the pool to talent and reduce salary inflation.

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March 2013

Staff turnover still too high A consistent finding in the Logistics Executive Salary Report compared to last year is that staff turnover continues to rise and employers are battling to keep their best talent.

This manifests in companies battling each other for skilled candidates often leading to inflated salaries. Going forward, companies are starting to understand the importance of taking a blended workforce approach investing in programs to better retain and attract talent at all levels.

Geographic breakdown A consistent finding in the Logistics Executive Salary Report is that the Salary Structure across the four Metros, for a similar type of role and responsibility, varies although the gap is closing as cost of living pressure equalize. Mumbai continues to commands the highest salaries (particularly in mid to senior tier) where high cost of living in drive salaries upwards. Delhi, Bangalore, Chennai and Kolkata follow this trend in that respective order. From a corporate perspective, this highlights the need to appreciate local disparities and have a certain amount of decision-making in local markets, backed by a uniform top-down approach. Moving job roles or industries geographically may also be another strategy to address the issue of rising salaries and workforce expectations. In this respect companies with a wider footprint have an advantage as they have more capacity to move their employees around with the incentive of offering them new opportunities.

Embrace Diversity Increasing the size of the available talent poor is another critical initiative that needs to be tackled if we are to reduce future salary pressures. There is an overwhelming need to expand the talent pool to non-traditional sources. This may involve setting up schemes that offer more roles to women and education programs for unskilled workers.

Attracting more women to the male

dominated transportation and logistics sector won’t be easy, but companies that succeed will have access to a rich new labour pool. Gender and cultural diversity can pay off in other ways too, for example by sparking creativity and enhancing innovation. And companies that make sure to include women in top roles may find that profits increase too.

Collaboration with universities and other community organizations can facilitate training to ensure that the correct skill gaps are being addressed and companies are getting the skills that they need out of their new graduates. Otherwise they may need to continue to source their key skill-gaps from overseas in areas such as leadership and technical disciplines.

Conclusion The good news for India is that the employment outlook for 2013 and beyond remains positive. The salary outlook remains bright although the average increments experienced in the past few years will flat out to more sustainable pay increases.

On the flipside this is with the National Skill Development Organization’s projection the struggle for qualified talent is not likely to decrease anytime soon.

As we have seen a long term a salary inflation war is unsustainable and posses a real threat to this employment growth continuing at the same rate.

Thus the ominous is on the Human Resources function takes up the challenge of redefining company culture as a way of improving the total Employee Experience, enaging sepcialist partners and activity investing in talent development programes. In partnering with their Human Resources teams, Executives will recognize the broader role these teams can play in achieving commercial success and be better equipped to manage future workforce demands.

All of this certainly paints an interesting picture for 2013, in year where India has a change to emerge from recent setbacks and find it true position as a potential factory to the world.

n analysis

n Practice

n knowledge

n Survey

n human resource

d a B

When Hiring Decisions

o G

Making a wrong hiring decision costs money. Its not just a business issue but an economic one too, writes Darryl Judd.

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47

talent

J

ust as employing the right person can drive company performance, so it is true that conversely a bad hire decision can cost companies significantly.

As the pressure and urgency to place roles quickly increases to meet business demands the risk of poor process such as: poor screening, rushed interviews and lack of proper reference checking can contribute to the wrong hire decision.

As a recent survey in India demonstrated, hiring is a costly affair and bad hiring is costlier.

Undertaken in 2012, across over 8000 companies, the survey found that Indian firms are estimated to have lost at least `2,460 crore in bad hiring in 2012. In the pan-India survey about 89 per cent of respondents admitted they suffer from decisions to induct “unfit” and “un-trainable” talent. Some 11 per cent said they make cautious hiring decisions and therefore, losses were negligible.

The high financial cost of employee turnover, regardless of the level of wages being paid to the departing or incoming employees, makes a bad hire decision not only costly to the business, but a negative influence on staff moral resulting in a decrease productivity and even higher turnover.

Further to this, Companies said bad hiring impacted their productivity (22 per cent), lost time in hiring and training (21 per cent), lost money in hiring and training (19 per cent), brought employee morale down (17 per cent), negatively impacted clients (13 per cent) and negatively impacted sales (8 per cent).

48 SCMPr

March 2013

The survey pointed out that bad hires are those who lack quality, sincerity and understanding of the job. They can carry negative attitudes and are not team players. “They often reported deadline failures, and post-sales complaints were common around them,” said the study.

On a macro level, the cost of staff turnover is an important economic issue, not just a company related one. The widespread impact on the Indian economy through the loss of productivity and company performance significantly affects domestic and international business output damping GDP. In turn, this affects impacts on the ability of companies and the government to further invest in growing important parts of Indian’s economy to the benefit of all.

The true cost of turnover It is estimated that the cost of employee turnover can range from 40-200 per cent of an employee’s annual salary. The total cost of turnover includes money, time and other hidden or “soft” costs, which when combined, are often much more substantial than expected.

“Soft” Costs of Turnover n Lost expertise. n M issed deadlines

and disruptions to workflow. n Increased absenteeism due to stress. n Decreased productivity or customer service. n Reduced morale, which may cause remaining employees to express a desire to leave the organization.

Recognising the Problem Unfortunately, many companies do not recognize the problem, nor do they see the cost of turnover as a major problem. A further survey in the US in 2012, found that 50 per cent of organizations have a process in place to properly calculate turnover costs, its a classic example that you cannot fix what you cannot measure. In India, the increasing cost of turnover is largely underestimated and deemed to be an “unavoidable” cost of doing business in a challenging marketplace.

“Hard” Costs of Turnover n Administration

costs for leavers: exit interviews, payroll changes, etc. n Covering a vacancy with tempworkers or overtime. n Recruitment and selection costs: advertising the vacancy, reviewing applications, conducting interviews, etc. n On-boarding new hires: induction, training, etc. n Severance pay.

“Ineffective recruitment processes, poor interviewing techniques and a failure to undertake through background checking is costing organisations more than just lost time, valuable profits are being wasted.”

talent Whilst it is true that some degree of turnover is inevitable, and may even be advantageous, attracting and retaining top talent is the goal of every CEO, while replacing under-performers. Managers who are conscious of the rate and cost of turnover in their organisations are much better positioned to control these costs.

Take Control of Turnover Costs in Your Organization A Harvard University study found that 80 per cent of employee turnover stems from mistakes made during the hiring process. It’s all about prevention and ensuring we pay suitable attention before making the hiring decision.

Having solid governance mechanisms in your selection process including the use of CompetencyBased Behavioural Interview techniques, behavioural testing and stringent background checks can significantly bring down the quantum of bad hiring decisions made.

With increasing use of fake identities and resume fraud being undertaken, ensuring hiring teams have the resources to be able to undertake 3rd party background reference checking has never been more important.

Partnering with globally recognised Recruitment Partners, whereby benefits such as testing and extending guarantees are offered and ensuing your HR Hiring

teams are well training and able to invest in solid HR systems are further ways to mitigating risk.

As one Indian CEO pointed out in Indian hiring survey, “Individual companies have to take responsibility for bad hiring decisions. Recruitment managers are often under pressure to acquire cheap talent. So to save, say 5 per cent in the short term, companies end up losing about 10 per cent or more in the long term. It’s a typical India scene, globally things are different and it is this that must change.’’

Darryl Judd

COO, Logistics Executive darrylj@logisticsexecutve.com

www.scmp.in

...think supply chain Industry Portal for the Supply Chain Professional

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49

Last page

India Needs A Strategic Plan

I

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

50 SCMPr

March 2013

ndia can play a strategic role in growth of Asia as the new power hub of the world in future. The association of south East Asian nations is actively working towards India. These south Asian economies are integral part of the miracle that Asia has witnessed in the world due to geopolitical and economic shift that the world has seen.

With both America and Europe in trouble, growth of Asian economies will act as a trigger and much needed external push to economic activities in developed world.

This will create a symbiotic growth processes that will help a new economic growth level in the future.

ASEAN has become the largest trading partner in recent years. India trade has grown at a rate of 22 per cent in the last two years. India’s trade with china has developed phenomenally. It is the most documented development that the contemporary world has witnessed. The rise in the intra-regional trade and $ 12.2 trillion trade economy along with the formation of ASEAN economic community has provided an opportunity within ASEAN which India and China can hardly afford to ignore. The economic opportunity may even burry some of the geopolitical tensions that have been brewing up in the South China Sea. Economic History of China is a great example of how the economics have superseded all its political and geopolitical interest.

What does the ASEAN economic community mean for the development of the region? What India Needs to do to see that it capitalises on such an opportunity lying at its doorstep. The ASEAN economic community seeks regional integration by 2015 by cooperating in the areas of human resource development and capacity building, recognition of professional qualifica-

tion, consulting on economic and financial policies, trade financing, infrastructure and communication connectivity, electronic transaction through eASEAN, industrial integration to promote regional sourcing, enhancing private sector involvement for the building of the economic community.

India whose intra Asian trade increased by 8 per cent will benefit immensely if it embarks on a master plan of enhancing and strengthening physical, institutional as well as people to people connectivity. ASEAN countries are well on their way to make economic community a success. There is a significant intent and plan to integrate Mekong countries like Myanmar, Vietnam, Indonesia, Thailand and Cambodia with India through its east coast. Dawaei development plan is an ambitious plan which is planned to link Chennai to Bangkok which include Deep Sea Port, Special Economic Zone and Power Plants. All these will optimise production activities across the ASEAN region and facilitate trade. This coupled with some other initiative like Kyankepyum in Myanmar with support from China and India will make this region more productive and cost efficient. This may even turn the tide in favour of other ASEAN countries as against Singapore which enjoys complete monopoly of competitive advantage in trade because of its infrastructure and proactive trade and economic policies.

For India therefore creating a business friendly competitive environment which helps solve the current policy paralysis and focus on building physical and institutional infrastructure and reducing transaction costs of cross border trade is important.

Let’s see if India recognises this strategic opportunity and commits resources for infrastructure growth and frame policies which are growth friendly.

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