Bench Marking in Logistics Sector

8/14/2019 Bench Marking in Logistics Sector

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REPORT

ON

BENCHMARKING

OF

LOGISTICS INDUSTRIES IN INDIA

BY:

SHASHANK CHAUHAN


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TABLE OF CONTENTS

CONTENT PAGE NUMBER

1. Acknowledgements 02

2. Declaration......03

3. Industry analysis.05

4. Company Profile08

5. Data Analysis.15

6. Conclusion..21

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INDUSTRY ANALYSIS

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The Logistics Industry

Globally, the logistics industry is valued at US$ 3.5 trillion.

The U.S., which contributes to over 25% of the global industry value, spends close to 9% of its

GDP on logistic services.

The Indian Logistics Industry is presently estimated at US$ 90 billion.(CII)

The industry has generated employment for 45 million peoplein the country in comparison with

the IT and ITeS sector which employs approximately 4.3 million people.

It is forecast to grow at a Compound Annual Growth Rate (CAGR) of approximately 8% over

the next three to five years. (CII)

Third Party Logistics (3PL) Solutions, is slated to grow at a compound annual growth rate

(CAGR) of over 16% from 2007-10. Consequently, 3PL service providers are expected to corner

an increased share of the Indian Logistics pie, from 6% in FY06 to 13% in FY11, at a CAGR of

25% (CII).

The primary growth driversof this industry are as under: Investments in the infrastructure sector

amounting to US$ 350 billion:

Increased efficiency and productivity of the transport systemwould result in lower transit times.

Streamlining of the indirect tax structure:

The introduction of Value Added Tax (VAT)and the proposed introduction of a singularGoods

and Services Tax (GST) are expected to significantly reduce the number of warehouses

manufacturers are required to maintain in different states, thereby resulting in a substantial

increase in demand for integrated logistics solutions.

Robust trade growth

Strong economic growth and liberalization have led to considerable increase in domestic and

international trade volumes over the past five years. Consequently, the requirement for

transportation, handling and warehousing is growing at a robust pace and is driving the demand

for integrated logistics solutions.

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Globalization of manufacturing systems

Globalization of manufacturing systems coupled with advancements in technologyare

increasingly compelling companies across verticals to concentrate on their core competencies

and avail the cost saving potential of outsourcing. This is expected to contribute to an increase in

the need for integrated logistics solutions, which is the niche of every Third Party Logistics

Service (3PL Services) provider.

The industry has been valued at US$ 125 billion in 2010.(CII)

A snapshot of the FDI regulationsgoverning the industry is as under:

i. 100% FDI under the automatic routeis permitted for all logistic services except services

mentioned in points ii and iii below.

ii. FDI up to 100% subject to FIPB approval is permitted for courier services.

iii. FDI up to 49% under the automatic routeis permitted for air transport services, including air

cargo services. It is pertinent to mention in this context, that Press Note 1 (2007) that is expected

to be imminently notified by the DIPP proposes to increase the limit of FDI

on air cargo services in 74%.

The industry has been at the receiving end of increasing interest from the private equity

sector. The year 2007 witnessed just under US$ 1 billion in private equity investmentsin this

industry, representing approximately 7% of total private equity investments during the year,

against 3% in the previous year.

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COMPANY PROFILE

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SICAL:

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8

Brief profile

Sical Logistics Ltd. Website: www.sical.com

Industry Cargo handling Industry P/E 15.97

ROC Reg. No.

2431

Incorporation

Year 1955Ownership Chidambaram M.A. GroupRegistered office address South India House, 73, Armenian Street, Chennai - Tamil Nadu

Tel no. 66157071Fax no. 25224202

ISIN Code INE075B01012BSE Demat

Code

520086

BSE Listing

group

T

NSE Scrip

Code

SICAL

Face value (Rs) 10Beta 1.336

Listed On Bombay , Calcutta , Madras , National

Company Background

South India Corpn. (Agencies) Limited, was incorporated as a Private Limited Company in the year1955 and became a public limited company in 1981. The Company was founded by Mr. M.A.Chidambaram and his son Mr. A.C. Muthiah. The Company is engaged in shipping, stevedoring, shipchartering, ship repairing, marine engineering, marketing and clearing & forwarding business.

South India Corpn. (Agencies) Ltd. has five distinct divisions like the Logistics division, Marketingdivision, Manufacturing division, Agro division and Engineering division.

The Logistics division provides services in chartering, ship agency services, clearing and forwarding,stevedoring, transportation and warehousing. The Marketing division consists of the sales division for

building materials, cars and heavy vehicles, while the manufacturing division is engaged inmanufacturing and marketing auto components, flexible shafts, drums, refractories, etc. The agrodivision produces coffee, palmoil, special chemicals, enzymes and plant growth regulators and theengineering division focuses on construction, property development and boat building.

The company has its head office in Chennai and has branches in all the ports of the country both in theeast and west coasts. It also has agencies in countries like Greece, U.K., Scandinavia, Japan, Italy, etc.It is entering into strategic alliance with international companies to provide superior value addedservices.

The promoters hold about 64 percent of the company's equity while the institutional investors and the

Indian Public hold about 13 percent and 16 percent respectively.


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RELIANCE LOGISTICS:

Brief profile Reliance Logistics Pvt. Ltd.

Website: www.reliancelogistic

Industry

Cargo handling, incidental to landtransport Industry P/E 15

ROC Reg.No.

31593

IncorporationYear 19

Ownership Reliance Group [Mukesh Ambani]Registered office address Plot No.17, State Transport Road, Next To Khira Indl. Est., Santacruz( Mumbai - Maharashtra

Tel no. 26466700Fax no. 26466862

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ISIN Code BSE Demat

Code

BSE Listing

group

NSE Scrip

Code

Face value

(Rs)

10

Beta

Company Background

Reliance Logistics Ltd., owned by the Reliance group was incorporated in the year 1985. It is mainlyengaged in transportation, distribution and integrated logistics services.

With its registered office situated in Mumbai, it is operating with 5 regional offices across the country. has a wide network of more than 100 branches and 46 warehouses throughout India. It has around 47distribution centres in 27 locations across India.

The company is in the business of road transportation, distribution, integrated logistics services includinroll on-roll off(RORO) and rail movements, container placements for export-import cargo and vehicletracking systems. Its multi user distribution centers provide benefits of shared infrastructure to itscustomers to increase efficiencies in their supply chain. It provides third and fourth party logistics servicto its customers by providing logistics functions across multiple links in logistics value chain and also plthe role of an integrator that assembles the resources and technology of its own and other organisations tprovide comprehensive supply chain solutions. It controls the movement of liquid chemical, solid producand gases like carbon black feed stock, polymer, polyester, liquefied petroleum gas, butene etc for theReliance group. It also provides value added services like vehicle tracking solutions, where it providesservices regarding fleet and consignment tracking and monitoring and also transportation system andtechnology services through its information technology support systems. It is also developing its own fleof trucks through its relogistics network companies.

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ESSAR LOGISTICS:

The Company Essar Shipping Ports & Logistics Limited (ESPLL), is an end-to-end logistics

services provider with investments in ports and terminals, logistics services, sea transportation

and oilfield drilling services. The integrated business model provides opportunites to cater to the

complete supply chain management services to clients in oil & gas, steel and power generation

industries.

ESPLL operates in the following businesses

The Ports & Terminals business operates a crude oil and petroleum products terminal at

Vadinar and includes the construction of a dry bulk port at Hazira and a Coal jetty at Salaya, all

in the state of Gujarat. The Vadinar terminal, is an all-weather, deep-draft port, which provides

crude oil and petroleum products storage, handling and terminalling services. The port has a

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Single Point Mooring system capable of handling crude capacity of upto 27 MMTPA and marine

facility for export of petroleum products of upto 6.5 MMTPA. The dry bulk port being

constructed at Hazira involves setting up a 30 MTPA all-weather, deep-draft port and jetty

facility. The port will have a berth of 550 meters length and an alongside depth of 12.5 meters.

The proposed berth will handle the import of iron ore, pellets, coal, limestone and export of

finished steel products. The port facility at Salaya comprises of setting up of a 10 MTPA marine

material handling facilities to cater to the need of imported coal requirement and export of

petroleum coke.

The Logistics business provides end-to-end logistics services from ships to ports, lighterage

services, intra-plant logistics and dispatch of finished products. It owns trans-shipment assets to

provide lighterage support services, and onshore & offshore logistics services. It also operates afleet of 4,200 trucks (of which 38 are owned) to provide inland transportation of steel and

petroleum products.

The Sea Transportation business provides transportation management services for crude oil

and petroleum products, and dry bulk cargo to the global energy, steel and power industries.

With an experience of more than 220 ship years, it owns a diverse fleet of 25 vessels, and a

further twelve New Building Vessels on order.

The Oilfields drilling business offers onshore and offshore contract drilling, and offshore

construction services. The current fleet includes a semi - submersible offshore and twelve land

rigs.

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Data analysis:

ANALYSIS FOR 3 YEARS OF RATIOs

RATIO/ CompanySICAL

SICAL

RELIANCE

ESSAR

2008

2007

2006 2008

2007

2006

2008

2007

2006

DRMi

998.63

2

1312.94

9847.359

901.234

1008.96

7

1100.54

4

2018.43

3

2456.75

4226

5.78

DWIPi0.167

9.629

10.25

0.30999

0.27891

0.31323

0.236

2.667

8.997

DFGi0.421

10.66

12.855

0.32999

0.28777

0.30987

0.338

4.995

6.887

(Rmi)10.452

9.652

8.604

13.454

9.876

8.769

14.776

10.876

7.836

CRMSi13.934

32.199

44.474

14.556

29.667

40.821

13.887

23.834

40.662

CWIPSi589.88

968.43

918.04

410.667

590.665

956.994

678.567

774.884

1001.66

2

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FGi0.593

20.552

18.49

0.567

14.774

12.887 0.59

12.998

18.755

CFGSi

590.47

3988.982

936.53

411.234

605.439

969.881

679.157

787.882

1020.41

7

Normalised cost of rawmaterial

0.0

0742

0.00373

0.00

5159

0.00456

0.00334

0.00567

0.00225

0.00654

0.00348

Normalised cost at theend of raw material

0.0236

0.0326

0.0474

0.0556

0.0627

0.0994

0.0336

0.0667

0.0776

Normalised cost at theend of WIP 1 1 1 1 1 1 1 1 1Normalised cost at theend of finished goods

10.464

35.16

30.84

23.54

45.55

46.765

11.43

37.776

25.665

ISCCi10.464

35.16

30.84

23.54

45.55

46.765

11.43

37.776

25.665

ISCSi0.0185

0.0351

0.0317

0.0194

0.0549

0.0764

0.0186

0.0334

0.0667

ISWCi47.02

207.15

225.01

33.568

336.764

45.742

23.467

37.664

55.845

ISWCPi12.006

4.832

4.319

17.773

3.885

4.226

14.447

3.667

5.774

Table -1

2006 DRM DWIP DFG TOTAL LENGTH

SICAL 847.359 10.25 12.855 870.464

RELIANCE 1100.544 0.31323 0.30987 1101.166

ESSAR 2265.78 8.997 6.887 2281.664

The cumulative lengths are

Table-2

LENTH AT THE

END OF RAW

LENTH AT THE

END OF WIP

LENGTH AT THE

END OF FINISHED

TOTAL LENGTH

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MATERIAL

STAGE

STAGE GOODS STAGE

SICAL 847.359 10.25 12.855 870.464

RELIANCE 1100.544 0.31323 0.30987 1101.166

ESSAR 2265.78 8.997 6.887 2281.664

Table-3

START DAY

LENTH AT THE

END OF RAW

MATERIAL

STAGE

LENGTH AT THE

END OF WIP

STAGE

LENGTH AT THE

END OF

FINISHED

GOODS STAGE

SICAL 1411.2 2258.56 2268.81 2281.664

RELIANCE 1177.680 2278.224 2281.35 2281.664ESSAR 0 2265.78 2274.78 2281.664

Table-4

SICAL RELIANCE ESSAR

COST OF RAW

MATERIAL

350.29 228.54 311.33

COST ADDITION IN

THE RAW MATERIAL

STAGE

8.604 8.769 7.836

COST AT THE END OF

RAW MATERIAL

STAGE

358.894 237.31 319.17

COST AT THE END OF

WIP STAGE

434.474 234.821 433.662

COST ADDITION AT

THE FINISHED GOODS

STAGE

18.49

12.887 18.76

COST AT THE END OF

FINISHED GOOD

STAGE

445.964 244.56 452.43

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Table-5

SICAL RELIANCE ESSAR

NORMALIZED COST

OF RAW MATERIALS

.32 .19 .49

NORMALIZED COSTAT THE END OF RAW

MATERIAL STAGE

.33 .19 1.03

NORMALIZED COST

AT THE END OF WIP

STAGE

.99 .99 .99

NORMALIZED COST

AT THE END OF

FINISHED GOOD

STAGE

1 1 1

COST OF

HOLDING

INVENTORY FOR

TIME PERIOD I

INTERNAL

SUPPLY CHAIN

MANAGEMENT

COST FOR TIME

PERIOD I

INTERNAL

SUPPLY CHAIN

INEFFICIENCY

RATIO FOR TIME

PERIOD I

SICAL 13.31 246.34 .20

RELIANCE 14.46 269.58 .15

ESSAR 59.08 339.29 .12

INTERNAL

SUPPLY

CHAIN

INTERNAL

SUPPLY CHAIN

WORKING

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WORKING

CAPITAL

FOR TIME

PERIOD I

CAPITAL

PRODUCTIVITY

FOR TIME

PERIOD I

SICAL -154.89 -3.1

RELIA

NCE

-108.07 -5.7

ESSAR -394.52 -3.4

SUPPLY CHAIN INEFFICIENCY RATIO

2006 2007 2008

SICAL

RELIANCE

ESSAR

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HOLDING PERIOD FOR THE FIRMS

HOLDING

PERIOD

(NO.OF

DAYS)

SICAL RELIAN

CE

ESSAR

2006 2007 2008 2006 2007 2008 2006 2007 2008

RAW

MATERIAL

54 30 44 56 58 46 26 27 35

WIP 5 6 4 1 1 1 4 1 5

FG 22 17 19 22 22 27 18 27 27

Cost Profile

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CONCLUSION:

The following conclusion can be drawn from tables:

1. Essar has the least days of raw material inventory. Also, this company has the lowest

aggregate length, i.e. the composite figure including days of raw material, WIP, and

finished goods.

2. Sical has the least days of finished goods inventory. However the product stays as raw

material for the longest time in Cadbury.

3. Reliance has the longest days of finished goods inventory but the least days as WIP.

4. The aggregate industry profile shows that for the industry as a whole, the product stays in

finished goods inventory for a long time and the companies bear significant cost in

keeping the product as raw material.

The result suggests that the companies strive to bring down the level of raw material and finished

goods since there is no value added in these stages and the company has to bear the inventory

carrying cost. Nestle seems to be successful in this objective. However, the product stays in WIP

stage for the medium time for this company. This suggests that the company attempts to delay

the product differentiation to the last stage of the production process.

The above data analysis results point to the fact that looking only at internal supply chain working capital

productivity parse would be myopic and would not capture the total performance of the firm .Total

performance needs to take into account the partnering approaches of the firm, which is possible by

examining the components of the internal supply chain working capital.

Reference:

1. Janet shah, supply chain management, 2009

2. PROWESS DATA BASE (CMIE).

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Bench Marking in Logistics Sector