Smart Logistics - December 2010

Vol. 01 | Issue 08 | DECEMBER 2010 ` 100/-

Vol. 01 | Issue 08 | DECEMBER 2010 ` 100/-

DECEMBERDECEMBER 2010 2010 • SMART LOGISTICS SMART LOGISTICS • 7

TERTIARYPRESENCE NO MORE

The market creates its own rules and ecosystems. Just as the world woke up to the need of a more evolved

logistics industry, thanks to the growing demands from the manufacturing sector and a strong EXIM wave, it was imperative for companies to focus on core areas and let the supporting agencies or partners manage the peripheral yet critical tasks. The market conditions then created this ecosystem and these partners were named third party logistics (3PL) service providers.

From then to now, in this highly competitive and complex business environment, we still need these supporting partners, but the wish list of the industry pertaining to the 3PL providers has changed. Today, India’s 3PL market is an attractive business opportunity for logistics service companies. Though the 3PL market accounts for more than 50 per cent of the total logistics market in developed countries, it is still at a nascent stage in India.

Even in its nascent stage, it is a leader in the making, and there are enough & more reasons to support this claim. 3PL service providers are credited to help the industry achieve critical goals related to service, cost and customer satisfaction. In short, they offer flexibility, freedom and future growth. Effective use of outsourced logistics services can be the key to agile and successful logistics solutions for the new age customers. This is reflected by the rapid mushrooming of 3PL players. But their positioning in the value chain is the big topic of debate and discussion.

Presently, some of the most frequently outsourced activities are more transactional, operational and repetitive. Thus, an ambit has been created for 3PL providers to tap

these opportunities. The relationship and the involvement of 3PL providers with the industry should now move to a higher and more strategic level. It also has to be more customer-friendly and IT intensive – reason enough for the 3PL players to graduate from having tertiary presence to a more involved and more evolved one.

But before that, this set of players need to get their house in order. There is still a gap in the trust and confidence pertaining to the capabilities of the 3PL providers. Additionally, integrating IT system with those of the outsourcing partner still lies in the grey area. These gaps must be filled, these answers must be found, as trust and technology are the main pillars of growth for this industry.

Staying with growth, volatility and innovation-led developments are the realities of the new age market. The Indian 3PL companies must act swiftly and shape themselves to serve the world, because discovering growth islands in the global market, especially the ones dotted by inefficiency and fragmentation, is another reality of our times. Finding tools and techniques to overcome inconsistencies and need gaps in the global marketplace is comparatively easier with so many best practices already floating around. Multinational logistics companies are carefully observing the changing dynamics of the Indian logistics market and seeking the winning opportunity to participate in the growth story. Are the Indian 3PL providers listening?

Archana Tiwari-NayuduExecutive Editor

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EDITORIALExecutive EditorArchana Tiwari-Nayudu

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VIEWPOINT

8 • SMART LOGISTICS SMART LOGISTICS • DECEMBER 2010DECEMBER 2010

3PL Market DynamicsA Balanced Economy Is Key To Success

INSIGHTS & OUTLOOK: 3PL

VOL. 01, NO. 08 DECEMBER 2010

ALSO IN THIS ISSUEVIEWPOINT 7

NATIONAL NEWS 10PROJECT UPDATE 12NEWS ANALYSIS:

Warehousing (Development & Regulation) ActMoving Towards Advanced Storage Norms 14Coastal ShippingMoving Forward With New Policy 16PRICE TRENDS 18WORLD NEWS 20TECH TRACK 60PRODUCT & ADVERTISERS’ INDEX 68PRODUCT & ADVERTISERS’ INQUIRY FORM 69

CONTENTS3PL: Integrating Core CompetenciesOn The Lookout For An All-rounder 26

VIEW FROM THE TOP

‘Having The Right Technology In Place Can Help Companies Increase Their Productivity’Derek H Gittoes, VP – Logistics Product Strategy, Oracle

38

Driving Up MarginsAction Plan For 3PLs

3PL: Challenges In PartnershipsBuilding Trust For A Meaningful Relationship

One ‘Q’ Many ViewsIndian 3PL: Gaining Competitive Edge Over Foreign Counterparts

363230

PREVIEW58 Engineering Expo Indore 2011 Investment Ahoy!

67 HiTech Automation Show Taking Material Handling To The Next Level

SECTOR UPDATE

Oil & Gas LogisticsTransforming Fuel Economics

40

SL EXCLUSIVE

Less Than TruckloadReducing Logistics Cost Burdens

44

SMART STRATEGIES

Business Intelligence In LogisticsSmart Solutions For Effective Management

48

WAREHOUSING & DC

52Warehouse Management SystemTen Questions To Ask A WMS Vendor Before You Buy

55Cost Effi ciencyStoring Becomes Remunerative

TECHNOLOGY TRENDS

64Machine Vision SystemsKeys To Enhance Traceability

With rapid growth in the global logistics industry, Indian service providers face stiff competition from multinational companies having the expertise and fi nancial strength to provide end-to-end logistics services. Also, globalisation has increased the need for a single logistics provider that can provide all-round services. Thus, domestic players need to integrate their core competencies to become one stop shop for full range of logistics services.

22


NATIO ALEWS

■ DHL PREDICTS ADDITIONAL GROWTH IN APEC ECONOMIES

DHL has identified three key levers to help emerging economies improve their logistics efficiency and reduce the cost of trading by up to 30 per cent by 2020. DHL has appealed to state governments, shippers and logistics companies to become active partners in reducing paperwork and administration, reform customs and security processes and invest in infrastructure to maintain the APEC countries’ competitive advantage.

Hermann Ude, CEO, DHL Global Forwarding, said, “Over the past 30 years, world trade as a percentage of GDP has increased from one-third to over 50 per cent, making international trade the most important driver of economic growth and rising living standards. However, inefficient logistics in many economies are still a roadblock to trade growth. For example, BRIC countries on an average require twice as many export/import documents versus Singapore or Germany. As a result, paperwork can be the single-most time consuming element in the life of a shipment, with vital days lost and costs increasing as products spend more time in warehouses than on the move.”

A decreased administrative burden is the lever that can provide the most logistics cost savings and is a relatively easy win via the increased use of technology, such as e-customs, and better cross-border co-operation and governmental agreements. “The way forward is through improved intelligence, not sole reliance on physical security measures. Information sharing, facilitated by stronger collaboration between businesses, industries and public authorities all need to take place to make our world a safer place,” said Ude.

■ FEDEX EXPRESS TO ACQUIRE AFL BUSINESSES

FedEx Corp recently said that its FedEx Express business unit will acquire the logistics, distribution and express businesses of AFL and its affiliate, Unifreight India. This acquisition will give FedEx a more robust domestic ground network and added capabilities in India. FedEx expects this transaction to close in its third fiscal quarter, which ends February 2011.

“The acquisition supports our long-term strategy to grow our international business and better serve our customers seeking to expand or enter the Indian market. This will provide customers with more service options such as domestic ground and value-added services, including warehousing, logistics solutions and third party logistics, while allowing them to take advantage of an increased coverage area,” said Michael L Ducker, COO, FedEx Express. Cyrus Guzder, Chairman of AFL, said, “This transaction provides AFL an opportunity to offer its customers an enhanced level of service. While our extensive network and logistics infrastructure will enable FedEx to deepen its penetration in the Indian market, I believe AFL’s customers will be pleased with the prospects of AFL’s service offering being strengthened under the leadership of a global leader in express delivery and transportation.”

■ COASTAL SHIPPING MAY BE THROWN OPEN TO FOREIGN LINES

The Indian coastal shipping services are proposed to be thrown open to foreign shipping lines. To begin with, the plan is to allow foreign flag vessels to carry only containerised cargo along the country’s coast. All other types of cargo will be reserved for Indian ships, according to a note circulated by the Directorate General of Shipping.

Cabotage regulations, under which the coastal cargo is reserved for Indian ships, will continue for all other types of cargo except containerised cargo, the note stated.

K Mohandas, the Shipping Secretary, said, “The proposed policy will be implemented in phases. It is an action plan with a time frame for implementation by the Directorate General of Shipping, Ministry of Shipping and other ministries.” The immediate beneficiary of the proposed policy, once implemented, will be the new container terminal at Vallarpadam near Kochi. The Vallarpadam terminal will be able to do transhipment of cargo engaging foreign flag container carriers.

Indian shipowners, however, have been opposing the government’s move to allow foreign shipping to operate costal services. Anil Devli, Chief Executive of Indian National Shipowners Association, said, “We have already made our stand on Cabotage clear. It is in the country’s interest and the development of shipping tonnage that the coastal cargo has been reserved for national flag carriers.”

■ SHIPPING CORPORATION OF INDIA TO ADD 62 VESSELS IN 11TH FIVE YEAR PLAN

As part of its ambitious expansion plan, the Shipping Corporation of India (SCI) will add 62 vessels in the 11th Five Year Plan, a company official recently said. “We have plans to acquire 62 vessels in 11th Five Year Plan. We have already ordered 32 vessels and will place orders for 30 more vessels by the end of March 2012,” said S Hajara, Chairman and Managing Director, SCI.

The ships being acquired by SCI would predominantly cater to Indian import/export shipments. The additional vessels the company has ordered are expected to allow it to increase its total Deadweight Tonnage (DWT) from 5.11 million to 6.84 million. SCI plans to take its capacity to 10 million DWT by acquiring vessels in the next six years, Hajara said.

“Our objective is to maintain our dominant market position

Coastal shipping


in the Indian shipping industry with a focus on high growth segments. The new vessels will lower the average age of our fleet, and we believe, thereby reduce our operating costs. Investments in additional vessels will also allow us to bid on additional charters worldwide, thereby, increasing our market share and further diversifying our sources of income,” Hajara said.

“We intend to continue to further expand and develop our break-bulk business by entering into new joint service agreements with vessel owners to operate in trade lanes that we believe present areas for diversification and growth such as Europe to the Middle East, the East Coast of the US to Europe and Southeast to Far East Asia,” adds Hajara.

■ VRL LOGISTICS BAGS NEW ERA AWARD VRL Logistics has recently been awarded the ‘New Era Award for Technology, Innovation and Quality’. The Committee of Other Ways Management and Consulting Association (OMAC) selected VRL Logistics for the honour for its achievement in quality, excellence and total customer satisfaction.

Vijay Sankeshwar, CMD, VRL Logistics said, “Pleasing patrons and living up to their trust have always been the focus. These awards acknowledge that we are moving in the right direction.” Meanwhile, Anand Sankeshwar, Managing Director, VRL Logistics, said, “Technology, innovation and quality have been the backbone of our business structure, without which the phenomenal growth would not have been possible. Over the last three decades, VRL Logistics has established itself as a front-runner in the Logistics Space. This evolution would not have been possible without the vision, a willingness to embrace change, a strong capacity for innovation and acute awareness for customers growing requirements.”

VRL Logistics has also entered the Limca Book of Records as the largest fleet owner in private sector in India with a fleet of 2,691 commercial vehicles and hi-tech buses.

■ MAERSK LINE WINS ‘BEST CONTAINER LINER OF THE YEAR’ AWARD

Maersk Line won the ‘Best Container Liner of the Year Award’ at the ‘Annual Indian Maritime Gateway Awards 2010’ at a function in Mumbai recently. The awards are aimed at promoting best practices, innovation and motivation. Bas Huele, Director, Customer Service, Maersk Line, accepted the award on behalf of the company.

The winners were determined by quantitative and qualitative analysis made by the jury comprising representatives from the government, industry and the editorial advisory board members of Maritime Gateway. Other winners and attendees at the function included Paradip Port Trust, Mundra Port & Special Economic Zone, Chennai Container Terminal (DP World Chennai), The Shipping Corporation of India, The

Great Eastern Shipping Company, ABG Shipyard, Allcargo Global Logistics and Gujarat Maritime Board.

■ RAILWAYS FREIGHT LOADING UP 7.15 PER CENT IN OCTOBER

By moving 78.71 million tonnes (MT) of traffic, the Indian Railways registered a robust 7.15 per cent growth in freight loading in October against the corresponding period last fiscal. This is the highest growth recorded in the current fiscal.

The growth in October 2010 was supported by good growth rates in coal (approximately 9.88 per cent), foodgrains (approximately 14.96 per cent), steel (approximately 9.91 per cent) and cement (approximately 15.28 per cent).

Negative growth, however, continued in the loading of iron ore, which has been affected by sanctions imposed in Orissa and Karnataka, an official release said. Compared to freight loading in September 2010, the growth is 10.01 per cent. “During October, the revenue earning freight traffic carried by the Indian Railways was 78.71 mt. This is an increase of 5.25 mt over the actual freight traffic of 73.46 mt carried by the Railways in October 2009, registering an increase of 7.15 per cent,” the official release added.


PROJECTUPDATE

■ PETRONET LNG TO EXPAND KOCHI TERMINAL CAPACITY

The Petronet LNG Board has sanctioned in principle the expansion capacity of the Kochi terminal from 2.5 to 5 Million Tonne. This move would entail an additional investment of `450 crore from the total project cost of `3,700 crore.

“The company is in discussions with various suppliers from around the world for sourcing LNG,” said S Sundareshan, Secretary, Petroleum and Natural Gas. The Kochi terminal expansion is moving as per schedule and is expected to be commissioned by March 2012, added Sundareshan.

AK Balyan, CEO & MD, Petronet LNG, said that PLL will be organising a two-day general assembly meeting of GIIGNL in Kochi, where LNG importers operating in 19 countries around the world would participate. The group meets once a year at different places. This is the 40th assembly of the importers group and India is hosting the conference for the first time, he said.

Meanwhile, the Petroleum Secretary said that public sector oil companies are going to be the major investors in Kerala over the next two years as they have earmarked an over `10,000 crore investment in the state. This will include LNG terminal, GAIL pipelines, upgradation and modernisation of oil companies, etc.

He said that GAIL’s arrangements of laying pipelines from Kochi to Mangalore and Bangalore; Kochi to Kayamkulam and Thiruvananthapuram; under sea pipelines to Kayamkulam from Kochi are complete. The first phase of the project will be ready in the next 18 months and the second phase by 2013.

The state also has one of the largest LPG connection coverage, which accounts for 83 per cent households against the national average of 50 per cent. The PSU oil companies are also geared up to meet the requirements of the state as there is a 10 per cent increase in petrol consumption and five per cent in diesel, he added.

On the proposed gas pricing policy, Sundareshan said that the government was in favour of an approximately uniform price of gas irrespective of source. The company, which discovers the gas, will have to fix a price and then seek the government’s approval. Under the APM, the gas pricing range is fixed between $4.2 and $5.5. The price of any newly discovered gas should be in that range, he said.

■ MoU SIGNED FOR LAKSHADWEEP SPECIAL BERTH AT BEYPORE PORT

The Lakshadweep Development Corporation (LDC) and the State Port Department have signed a memorandum of understanding (MoU) for the construction of a `20-crore dedicated berth for Lakshadweep at the Beypore Port recently.

The MoU was signed by Jacob Thomas, Director, Department of Ports, and Lakshadweep Collector-cum-Development Commissioner N Vasantha Kumar in the

presence of the Minister for Ports V Surendran Pillai at a function presided by Industries Minister Elamaram Karim at the port premises here.

The proposed 200 metre dedicated wharf, once completed, is expected to ease out many a travelling woe of passengers from Lakshadweep to the mainland and back besides finding a way out for the lack of facilities for cargo ships to the islands.

The master plan for the development of the port has already been prepared, incorporating the dedicated berth for Lakshadweep, and the tender for identifying an investor for the project is expected to be floated soon. The port is being developed on a public-private partnership basis.

■ KOLKATA PORT TRUST PLANS MIDSTREAM TRANSLOADING FACILITIES

The Kolkata Port Trust (KoPT) will introduce midstream transloading facilities, where a bigger vessel can offload goods to smaller ones. Arrangements in this regard are being made off Sagar Island in Sandheads at the mouth of the Hooghly river.

The transloading facilities are expected to begin operation within this financial year, ML Meena, Chairman, KoPT, said.

Meena expects the KoPT to witness a rise of at least 10-15 million tonne of cargo once the midstream offloading facilities are in place. Currently, the KoPT, Kolkata and Haldia dock system combined, handles a container load of 52 million tonne.

Several national and international companies have expressed interest in carrying out transloading facilities on a public-private partnership (PPP) basis. Foreign firms including Bocimar (Belgium) – a subsidiary of Compagnie Maritime Belge (CMB) – and French shipping company Louis Dreyfus Armateurs (LDA), as well as some Indian companies such as Tata Martrade International Logistics (a Tata Steel subsidiary) and ABG Shipyard have shown interest in the $100-million project.

Meena said that the KoPT was also planning to follow the


Chinese model of setting up jetting along a river so that it becomes easier for large vessels to offload their goods before entering the Kolkata or Haldia dock complex.

■ DEFENCE STAND ON COMPENSATION MAY DELAY CHENNAI AIRPORT EXPANSION

The proposed modernisation of the Chennai airport could be delayed as the Army wants to be compensated with a piece of land equal in size and value to what is being surrendered by it for the airport, army officials said. “At the moment, the project is not impacted, but it could have an adverse impact unless the land is made available soon,” the officials said.

Approximately 20 acres of defence land is required to make additional hangars and to increase the operational efficiency of the airport. The completion of the project will see an increase in the airport handling capacity in terms of both passengers and aircraft. After modernisation, the airport will be able to handle 40 aircraft movements an hour, up from the current 30, with the number of aircraft parking bays going up to 84 from the current 70. Traffic projections for the airport show that while it handled 1.05 crore passengers in 2009-10, this figure is expected to touch 1.19 crore in 2011-12 and reach about 1.30 crore the following year.

While the modernisation of Delhi, Mumbai, Hyderabad and Bangalore airports is being undertaken by various joint venture companies in which different private sector companies have a majority stake, the government has decided that the Airports Authority of India will undertake modernisation of Chennai and Kolkata airports.

■ PARSVNATH PARTNER TO INFUSE `270 CR INTO RAILWAY LAND PROJECT

Parsvnath Developers said that its partner Red Fort Capital would infuse `270 crore into the Delhi Railway Land project. Parsvnath emerged as the highest bidder for developing the 38-acre prime plot, in an auction by Rail Land Development Authority (RLDA) after it offered to pay `1651.51 crore.

“The first installment of 20 per cent along with certain expenditure adds up to about `380 crore. Of this, `270 crore funding will come from Red Fort Capital and `110 crore from us. The subsequent fund requirement, after the stipulated 18-month moratorium, will be met from internal accruals and debt. Red Fort Capital and we will invest further, if required,” said Pradeep Jain, Chairman, Parsvnath Developers.

Parsvnath will have majority stake in the proposed project. The company expects construction on the mixed land use development project to commence in 9-12 months. “We expect the first phase to be completed in two years from the start of construction date. All the phases will take four years or so,” he said.

From the total 5.5 million square feet (msf) of salable area, the developer is required to build and hand over 0.5 msf for housing and other facilities for Railways. “Close to 4.5 msf will

be premium luxury housing and, the rest for commercial and office space,” added Jain.

■ RAILWAYS TO SPEND `200 CRORE ON MANGALORE INFRASTRUCTURE

The Railways is planning to spend around `200 crore for the development of infrastructure in and around Mangalore. The infrastructure development project includes doubling the 19 km railway line between Mangalore Junction and Thokur, said SK Raina, Divisional Railway Manager, Palghat Division, Southern Railway. The cost of doubling the Mangalore Junction-Thokur stretch has been estimated at `150 crore, he said.

Another `35 crore has been estimated for the doubling of railway line between Nethravathi Bridge and Mangalore Junction railway station. The Railways aims to complete the work by March 2011.

Meanwhile, Palghat division is planning a second entry for the Mangalore Central railway station. Work on the second entry will be started in three to four months and will be completed in a year, he said. The proposed entry will house a booking counter and will have space to accommodate 100 vehicles.

■ TWO OF 21 PPP PORT PROJECTS TAKE OFFThe government has been able to award only two of the 21 targeted public-private partnership (PPP) projects for major ports for the financial year 2010-11. The two projects have been awarded at Tuticorin and Ennore Port Trust.

The targeted private investment in these projects is approximately `14,000 crore in the current financial year. According to the policy for PPP projects, foreign companies can bid along with Indian companies for works at the major ports.

Under the National Maritime Development Programme, the private sector is expected to invest `34,000 crore, mainly in commercially viable projects like development and operation of berths and terminals.

The 21 PPP projects to be awarded this year also include the fourth container terminal at Jawaharlal Nehru Port Trust. The cost for the terminal is estimated at `6,700 crore.

Some of the most significant private sector port projects include the Nhava Sheva International Container Terminal – one of the first private port projects of India – and the International Container Transshipment Terminal, which is going to be operational from August next year.

“In the current system, bidders are not allowed to phase out the capital expenditure in cases where it takes them several years to reach the full capacity. There is also no clarity over future tariff increases. These things make the proposals unattractive,” said Vishwas Udgirkar, Senior Director & Partner, Deloitte. The objective of having private investment is to upgrade and modernise the port infrastructure in India which will enable its performance to be benchmarked to global standards.


THE volume of trade in Indian mandis is substantial. According to industry estimates, the transaction in mandis (wholesale trading centres) for agro commodities alone accounts for a total of `2,500-3,000 crore daily. There are a total of 7,500 state-run mandis in the country. An immediate advantage with mandis is that they enable farmers to transport goods directly, but they clearly lack an organised means of storage.

This is where the concept of warehouse steps in. Modern warehouses have fully automated facilities to cater to the varying needs of clients. Global supply chains indicate that modern warehousing and storage has been in great form in terms of services they provide. The functions of warehouses have been increased

significantly, and this has proven to be an effective tool for smooth flow of the supply chain.

WAREHOUSING (DEVELOPMENT & REGULATION) ACT 2007The recently enacted Warehousing (Development & Regulation) Act 2007, aims at empowering warehouses across the country by equipping them with modern operational efficiencies. The Act came into force from October 25, 2010. The government also constituted a regulatory body under the Act – the Warehousing Development and Regulatory Authority (WDRA) – effective from October 26, 2010. Further, warehouse receipts (WR) would become negotiable through this Act, which also prescribes the form and

manner of registration of warehouses. The WR has an electronic format and will prescribe establishment of the WDRA. The WDRA will register and accredit warehouses to issue negotiable WR and also have a system in place for quality certification and grading of commodities to protect receipt holders against negligence, malpractices and fraud.

Rakesh Singh, Manager, Rakesh Road Carriers, says, “We will definitely see some change in the way warehousing business is done after the Act is implemented, as several companies are looking for transparency in operations from the government.”

The WR will assure the farmers of quantity, quality and validity, thus enabling them to access bank credit, besides helping

The recently implemented Warehousing (Development & Regulation) Act 2007 aims to incorporate automation in the warehousing functions to make warehouses more accountable across the country. In addition, it intends to enforce stricter norms to bring in operational efficiency and facilitate access by traders.

ANWESH KOLEY

MOVING TOWARDSMOVING TOWARDS ADVANCED STORAGE NORMS

NEWS ANALYSIS NEWS ANALYSIS WAREHOUSING (DEVELOPMENT & REGULATION) ACTWAREHOUSING (DEVELOPMENT & REGULATION) ACT


banks to achieve their priority sector lending targets. “The existing warehousing norms are quite good and this Act will further improve upon them,” says Aditya Sharma, Director, Prashar Road Carriers.

MERITS & DEMERITS OF THE ACT Even as warehouses gear up to expand their reach, the mandi business might experience a setback. A farmer or trader even in a remote village should be able to raise funds from banks, which would be equivalent to 75-80 per cent of the value of commodities by depositing the produce at a registered warehouse nearby. But, this would have a direct impact on the thousands of mandis across the country.

The industry, though, believes otherwise. I C Chadda, DGM Technical, Central Warehousing Corporation, believes, “Mandis will continue to exist, but farmers would benefit from the Act. While mandis serve the farmer directly, implementation of the Act would allow them to easily approach warehouses, which offer better storage facilities.” Currently, nearly 30 per cent of farmers transport goods to mandis on their own.

The remaining still sell their produce locally to raise funds immediately.

“Warehouses have specialised storage facilities and their increased accessibility will only benefit the sellers. Warehouses are run by large firms with expertise in the field, thereby benefiting the farmers,” believes Rachit Chawla, MD, CHC Logistics. Hence, after the Act is officially implemented, mandis will have to offer better services to farmers and other designated sellers.

Moreover, implementation of the Act has already started. “WDRA has begun working on the guidelines. The Chairperson has been appointed and staff members have been assigned their duties. Moreover, the Act is expected to have an immediate impact on the movement of perishable goods across the country,” avers Arvind Chaudhri, GM, Quality Systems, Central Warehousing Corporation.

Another major advantage offered by the Act is the negotiable WR, which any trader can use to avail loan facilities from banks. This facility is not available to them, if they avail the services in local mandis.

Local traders often sell their produce to local financers for quick realisation of their money. This forms the unorganised segment of financing, which the new Act will address. Also, the authenticity of WR will instill confidence among lending institutions, which were earlier apprehensive of lending to small traders due to lack of proper documents or scepticism regarding repayment.

While there is general consensus that the Act will bring operational efficiency in the country, it is clear that mandis will face the brunt of the new regulations. “As warehouses will try and cater to most of the services, mandis will see a slight dent in their business. However, the reduction in business will only be marginal,” adds Singh. Currently, mandis attract a large share of volume for perishable items.

NEW LEASE OF LIFEThe Act is a major step towards bringing the first line of manufacturers closer to buyers. Moreover, with the initial enthusiasm shown by the WDRA, warehousing might just receive the much-needed new lease of life.


NEWS ANALYSIS NEWS ANALYSIS COASTAL SHIPPINGCOASTAL SHIPPING

TODAY, the coastal shipping industry in India is anchored almost where it was decades ago, despite the emphasis on its potential and the strong need to develop this mode of transportation. Although more than 30 per cent of the total traffic handled by the Indian ports is routed through the coastal mode, the sector continues to face neglect by the government.

Looking at this, and as part of the measures to boost coastal shipping services, the Director General of Shipping has revised the rules on ‘river-sea’ shipping. The Directorate has prescribed new rules for the construction and operation of river-sea vessels. These vessels can operate both for inland water (river) and sea transportation. Industry experts say that the revised rules are expected to facilitate seamless movement of cargo, as the vessel operating in rivers would be able to operate along the coast as well.

FREIGHT RATES DOWNIn 2008, the Shipping Ministry had allowed river-sea shipping, but had to revise the rules due to certain limitations regarding the operational and pollution control measures. Opining that the revised rule will help in the industry’s growth, Satish B Agnihotri, IAS, Director General of Shipping & Ex-Officio Additional Secretary

to Government of India, said, “The revised rule would gradually help bring down coastal shipping freight rates and boost cargo movement along the coast.” It would also reduce the cost of ships for coastal services.

COASTAL SHIPPINGDespite the obvious advantages that coastal shipping has over land-based transportation modes in India, it has not yet grown to become an integral part of the country’s transport infrastructure. The sector is still at a nascent stage, and thus it has a huge scope for development. “A major reason for the

under-development of coastal shipping is that it has not received the priority it deserves. Despite being a major link in the integrated transport infrastructure system, vital for the country’s economic growth, coastal shipping sector is yet to get its due,” points out S N Maharana, CMO, Jawaharlal Nehru Port Trust. Agreeing to this, Capt Ajay Puri, MD, Skyrise Shipping, says, “For developing coastal shipping in India, the government should make efforts to improve the infrastructural facility at all ports. Moreover, India should utilise its extensive network of rivers, lakes and canals, which, if developed for shipping

The government has recently revised the policy on development of coastal shipping. This move is expected to gradually bring down coastal freight rates and aid in better cargo movement along the coast.

GEETHA JAYARAMAN

MOVING FORWARDWITH NEW POLICY

TTHE NEW ORDER PRESCRIBES STANDARDS FOR CONSTRUCTION AND OPERATION OF FOUR TYPES OF VESSELS FOR RIVER-SEA TRANSPORTATION, WHICH WILL HELP IMPROVE THE CONDITION OF COASTAL SHIPPING IN INDIA.


and navigation, can provide resourceful inland connectivity. For example, China is fully utilising its river ports to boost trade. It imports iron ore from India, Brazil and Australia, and uses many smaller ports services (river ports) for this purpose.” The new order prescribes standards for construction and operation of four types of vessels for river-sea transportation, which will help improve the condition of coastal shipping in the country. It is also expected to fill the gap in coastal shipping and ensure smooth flow of cargo.

River-sea shipping is popular in Europe and Russia, which have a seamless integration of navigable rivers and seas. In comparison, coastal shipping in India currently accounts for about 7 per cent of the local cargo traffic, with the balance transported by rail and roads.

NEW CARGO POTENTIAL There is a huge potential for automobile logistics in coastal shipping. A recent study on transportation of cars states that cars are conveyed from the manufacturing centre to dealers across the country by road or railways. Also, carrying vehicles by sea on specialised vessels is cost-effective, safe and eco-friendly. In India, Tamil Nadu and Maharashtra are the key automobile manufacturing hubs. These centres can ship manufactured cars from Chennai and Mumbai ports to various locations within the country, thus saving logistics cost and transit time.

Moreover, worldwide, sea-routed car carriers are considered as a safe mode of transportation. Chances of accidents and damage to vehicles are less as compared to that in road & rail. In countries such as Korea, Japan and Malaysia, cars are routinely transported by sea. In India, 2-3 million cars are produced annually but this low-cost mode of moving vehicles within the country is yet to be exploited.

CHALLENGESToday, coastal shipping operators in India are facing several problems. Various factors make it difficult to seamlessly move cargo from its origin to final destination, resulting in delayed delivery and higher operational costs. “First, there is no proper connectivity between the hinterland and ports. Most ports do not have dedicated berths for coastal vessels. They have to wait for berths and also undergo customs examinations,” avers Maharana.

The government should equip all major ports with a dedicated berth, de-linked from the main berths, for coastal vessels. Coastal vessels should be allowed to load and unload cargo without any Customs examination, similar to that in road transport, where trucks can load and unload goods without checking. Gagan Seksaria, Associate Director - Transportation & Logistics, KPMG India, points out, “Coastal shipping in India, like any other young business, needs several avenues of support. It needs well pocketed entrepreneurs, patient investors, customers as partners and suppliers, ports and last mile connectors, for instance, with a longer-term view besides conducive policy.”

Another challenge before this sector is the financial crisis

faced by most ports for building a ship. Maharana informs, “The cost of building a ship at Indian yards is 25 per cent higher than at Chinese or South Korean yards.” Besides, bank credit for acquiring ships is expensive in India. About 30 per cent of our earning goes to servicing of debt. “Considering the advantages of coastal shipping and for its development, the government should work out a mechanism to make funds available at lower interest rates to acquire ships for coastal operations,” he further suggests.

RELAXING CABOTAGE RULES FOR CERTAIN PORTSWith coastal shipping being an excellent alterative to land-based transportation modes, the purpose of all policies must be geared towards allowing this alternative to develop, scale and prosper. The relaxation of cabotage law in certain ports will immensely help accelerate ship movement. Seksaria says, “Cabotage relaxation for certain ports appears to be a step pivoted around cargo owners, as they will be the ultimate benefactors of the services that are likely to incubate after this relaxation, besides respecting the critical infrastructure-focussed investments made by foreign operators.”

THE WAY FORWARD With the revision of the governments’ policy of coastal shipping, there is a new hope for growth of this segment. Seksaria says, “Coastal shipping is a no-brainer, given its fundamental advantages, but a number of things will have to converge for it to become a grand success.”

India should utilise its extensive network of rivers, lakes and canals, which, if developed for shipping and navigation, can provide resourceful inland connectivity.

18 • SMART LOGISTICS SMART LOGISTICS • DECEMBERDECEMBER 2010 2010

PRICE TRENDSThe RFI stood at 175 points for the month of November 2010 which was same in the month of October 2010, but registered an increase by 3 points as compared to November 2009

For Metros Ex – Chennai & Delhi rates registered on an average highest increase by 3 per cent, where as Ex – Kolkata on an average registered highest decrease by 4 per cent.

INDEX OF 6 YEARS:

AUTOMOBILES: The overall production data for April-October 2010 shows production growth of 33 per cent over the same period last year. In October 2010, production grew at 44.80 per cent over October 2009.

Passenger Vehicles segment in April-October 2010 grew at 34 per cent over same period last year. Passenger Cars grew by 34 per cent, Utility Vehicles grew by 22 per cent and Multi-purpose Vehicles grew by 50 per cent in April-October 2010 over April-October 2009.

For the period April-October 2010, three wheelers sales recorded a growth rate of 21 per cent, while Passenger Carriers grew by 24 per cent and Goods Carriers grew at 9 per cent.

COMMERCIAL VEHICLES:The overall sales of Commercial Vehicles segment registered growth at 38 per cent in April-October 2010 as compared to the same period last year. While Medium & Heavy Commercial Vehicles grew at 53 per cent and Light Commercial Vehicles grew at 26 per cent.

FORECAST FOR DECEMBER 2010:The RFI in December 2009 over December 2008 had registered an increase of 1 per cent and stability over November 2009. The RFI stood at 171.95 for the month of December 2009 and 171.89 in the month of November 2009 which registering an increase by 0.06 per cent. The RFI for the month of December 2010 can be expected to increase due transportation of seasonal products.

Knowledge Partner: Transport Corporation of India (TCI); website: www.tcil.com; e-mail: [email protected]

Indian Road Freight Index (IRFI), a service introduced by Transport Corporation of India (TCI), is an index of weighted average lorry freight rates across various routes, calculated based on the route density and the dynamic freight rates of routes across the country.

Road Freight Index Chart for November 2010

2005-06 2006-07 2007-08 2009-10 2010-112008-09

169

171 172

TRENDS FOR NOVEMBER (Y-o-Y)

168

175

147

TRENDS FOR DECEMBER (Y-o-Y)

148

169171 172

2005-06 2006-07 2007-082009-10

169

2008-09

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WORLDEWS

■ BRAMBLES TO BUY IFCO SYSTEMS FOR $1.3 BILLION

Brambles, the world’s biggest supplier of wooden freight pallets, is buying IFCO Systems, the largest provider of reusable plastic containers, for around $1.3 billion. The Australian logistics company will combine Netherlands-based IFCO with its US-based CHEP reusable plastic container business to create a global operation with a broad base in the US and Europe.

IFCO has a rental pool of around 112 million reusable plastic containers, which are used primarily to transport fresh produce from farmers to leading grocery retail chains like Wal-Mart. Tom Gorman, CEO, Brambles, said, “IFCO is a natural fit with Brambles’ existing reusable plastic containers and pallet businesses and will allow us to continue to deliver on our strategy of diversifying our revenue base by product platform, geography and customer type.”

Reusable plastic containers, which currently contribute around three per cent to Sydney-based Brambles’ revenue, will rise to 13 per cent of sales following the acquisition of IFCO, which is subject to regulatory approvals. Also, IFCO, which is 95.9 per cent owned by Island International Investment Limited Partnership, had a revenue of $735.9 million in 2009.

IFCO also operates a pallet-management services business in the US with almost 200 million wood pallets. Gorman said, “IFCO’s US non-pooled white wood pallet operation would complement CHEP’s existing pallet pooling services, allowing Brambles to broaden its service offering and more effectively target small-to-medium size customers.”

■ FOUR BIG CARGO GROUPS TO FORM AN INDUSTRY ADVISORY GROUP

Four of the world’s largest cargo organisations have decided to form an industry advisory group to liaise with the world’s governments. The International Federation of Freight Forwarders Associations (FIATA), the Global Shippers’ Forum (GSF), the International Air Transport Association (IATA) and The International Air Cargo Association (TIACA) all signed a letter of intent to “ensure the air cargo industry has a strong, unified voice in its dealings with worldwide regulatory authorities and other bodies whose decisions directly impact air cargo”.

The agreement commits that the four will promote the industry and find common ground on air cargo issues, such as security, customs reform, e-commerce and the environment. They will also seek the involvement of other global industry groups and the support of bodies, such as the World Customs Organization (WCO).

Michael Steen, Vice Chairman, TIACA, said, “The organisations will continue to operate as they do today in terms of how they support their respective memberships. This initiative is to look at how we can combine our respective strengths, contacts and resources in the area of regulatory affairs.”

“Collectively, we represent the most powerful grouping of

all parties involved in the air cargo supply chain. We all share a common goal – protect our members against costly and sometimes, unnecessary changes in legislation and to have a practical input into any future regulatory challenges before they become mandatory. We also want to have the strongest possible voice when it comes to highlighting to policy makers the vital role air cargo plays in world trade, employment, consumer choice and the growth of developing markets,” he added.

■ BROWN TRUCKING ACQUIRES WEST BROTHERS’ COMPANIES

Southeastern short-haul carrier Brown Trucking has acquired West Brothers’ Companies. The buyout adds warehousing, equipment leasing and brokerage to Brown’s portfolio, as well as about 220 tractors and 600 trailers. It will expand its dedicated contract carriage business, as well.

Brown now operates a combined fleet of 810 tractors and 3,500 trailers, but the company is looking for new business beyond its assets. “Adding asset-light divisions to Brown, such as the warehousing and brokerage business lines, will increase growth opportunities as well as add value to Brown’s existing customers,” said John Richardson, Board Director, Brown Trucking. West Brothers’ current owners, Tommy and Craig West, will leave the Durham, NC-based company. However, terms of the transaction were not disclosed.

The West Brothers’ acquisition is a significant step for Brown, which in August acquired Schrader Trucking of Tennessee, adding about 100 trucks to its fleet and expanding its reach from the Southeast into the Midwest and other regions. “Combining forces with the West will diversify our customer concentration across industries, enable us to expand our service offerings and provide significant cross-selling opportunities. Our combined companies can now offer an integrated solution across the supply chain for customers in a variety of industries throughout the Southeast, expanding to other parts of the US and Canada,” said Brian Kinsey, CEO, Brown Trucking.

Brown focusses on ‘the middle of the supply chain,’ providing time-sensitive regional truckload and dedicated carriage to the paper & packaging, appliance, consumer packaged goods and building materials industries. On the other hand, West works in verticals such as paper, construction machinery, personal care products, consumer packaging and pharmaceuticals. “Brown is well-positioned for growth as we continue our plan to build the leading provider in the Southeast,” said OG Greene, Board Director, Brown Trucking.

■ GLOBAL AIR CARGO TRAFFIC TO INCREASE 5.9 PER CENT ANNUALLY IN NEXT 20 YEARS

Boeing predicts that the global air cargo traffic will increase 5.9 per cent annually over the next 20 years, and that it will return to its 2007 peak by the end of 2010. However, it fails to mention the likely slump expected in 2011.


“Economic activity – world gross domestic product – is the key driver of the air cargo market. Following recession and a year of recovery, the world economic growth is forecast to average 3.2 per cent over the next two decades,” said Jerry Allyne, Vice President, Strategic Planning and Analysis, Boeing Commercial Airplanes.

The aircraft manufacturer focussed on the 24 per cent growth in traffic the industry has seen for the first eight months of 2010. Observers of the world’s economies would have noted however, that this year’s encouraging rebound is unlikely to be sustainable without consumer confidence. Nonetheless, in the long term, Boeing is positive, especially of the Asian markets, which it predicts will lead global traffic routes. “Domestic Chinese and intra-Asian markets will grow 9.2 per cent and 7.9 per cent per year, respectively. Asia-related markets will grow faster than the global average,” the forecast says.

Boeing also believes that the world freighter fleet will increase to 2,967 aircraft from 1,755 during the 20-year period, with large freighters – such as the Boeing 747 and 777 – representing 33 per cent of the fleet, compared to 27 per cent today. Freighter demand will be met by 743 new aircraft and 1,751 conversions at a total value of $180 billion.

■ UPS FREIGHT TO HAVE TRANSIT TIME IMPROVEMENTS BETWEEN THE US AND WESTERN CANADA

UPS Freight, the less-than-truckload (LTL) subsidiary of UPS, has made some transit time improvements between the US cities and Canada. Company officials said that it is focussing on improving its service from the southwest and western regions of the US, with two-day service from Denver and Las Vegas to Calgary and Edmonton, as well as three-day service to Calgary and Edmonton from the Dallas Metroplex and southern California.

“UPS Freight is always looking for ways to improve the value we offer customers. Strengthening our time-in-transit position across the US/Canada markets has been a priority for some time. As demonstrated over the last two years, UPS Freight has enhanced time-in-transit in over 1,100 lanes,” said Ira Rosenfeld, UPS Freight spokesman.

When asked about the biggest benefits of this news are

for shippers, Rosenfeld cited enhanced speed for shippers to get their product to their end customer faster, which in turn, shrinks their supply chain.

UPS Freight officials also noted that shippers can process, manage and track cross-border shipments through the company’s proprietary UPS WorldShip and Quantum View Manage Technology. “This news re-enforces the message that UPS Freight continues to look for ways to provide additional value for our customers. Despite the challenging economic and industry times, over the last several years, UPS Freight has remained committed to strengthening our LTL freight value proposition along core areas of reliability, speed, and technology,” explained Rosenfeld.

Also, Jack Holmes, President, UPS Freight mentioned in a statement that these lane enhancements further reinforce UPS Freight’s strong commitment to improve the overall value proposition for cross-border LTL shipments. He added that these latest moves bring the total number of lane improvements across the Canadian/US border to more than 1,100 in just the last two years, all backed by UPS Freight’s no-fee delivery guarantee for customers shipping on its current 525 tariff.

■ DAIMLER SELECTS SIEMENS’ SOFTWARE FOR VEHICLE DEVELOPMENT

Daimler AG has selected Siemens’ CAD Software for their worldwide vehicle development. Both the companies have agreed not to disclose the contract value.

With the decision on Siemens’ NX CAD Software, Daimler completes their current implementation of Teamcenter – the company’s product data management backbone. Based on this combination, the automotive manufacturer will establish digital collaboration from initial concept design, through simulation during design, and down to proof of concept of design solutions. The consolidation of digital product information in one single worldwide data pool will facilitate new vehicle development.

The introduction of parallel processes in development, design, production planning and production will further optimise the entire value chain. “The combination of NX CAD software with our product data management system, Smaragd, which is based on Teamcenter, will integrate our entire product creation process from design through production planning down to managing production machines,” said Prof Bharat Balasubramanian, who is responsible for R&D, product innovation and process technology at Daimler.

Another vehicle manufacturer has also decided to optimise their worldwide vehicle development process with software solutions from Siemens this year. “Our CAD and PLM software will help manufacturers enhance their development processes and production planning and therefore, increase their productivity,” said Charles C “Chuck” Grindstaff, President & Chief Technology Officer, Siemens PLM Software.


INSIGHTS & OUTLOOK 3PL MARKET DYNAMICS

THIRD party logistics (3PL) providers continue to provide strategic and operational value to many shippers throughout the world. Shippers regard logistics and supply chain management as key components of their overall business success. Moreover, many of them credit their relationships to 3PL as the one that helps them achieve critical goals related to service, cost and customer satisfaction. The recently conducted 2010 15th Annual Third-Party Logistics Study (2010 3PL Study) reaffirms these findings. The results of this study are based on survey responses from 1,133 industry executives representing users and non-users of 3PL services (referred to as shipper

respondents) as well as firms that provide 3PL services (called 3PL respondents).

CURRENT GLOBAL ECONOMIC CLIMATE AND USE OF 3PLOver the past 2-3 years, the shipper-3PL relationship has been significantly affected by the prevailing uncertainty and economic volatility impacting global markets. Thus, findings worked out by Armstrong & Associates include the magnitude of global 3PL revenues ($507.1 billion) and four major geographies included in the 2010 3PL Study (Figure 1). Further, 3PL revenues in the US are reported to have declined from $127 billion in 2008 to $107 billion in 2009, but were expected

to increase to $121 billion in 2010. While the past few years have been challenging for the global economy, the near-term

Uncertain global economy and volatile market conditions has highlighted the importance of collaboration between shippers and 3PL companies. However, both shippers and 3PL companies need to realise the importance of this relationship to overcome the challenges affecting the industry.

Global 3PL Revenues For 2009

Region 2009 Global 3PL Revenues (US$ billions)

North America 128.1

Europe 162.3

Asia-Pacific 136.7

Latin America 27.6

Other Regions 52.4

Total 507.1

Source: Armstrong & Associates, Inc., 2010

Figure 1


outlook is of a modest comeback to growth in the 3PL sector.

THE CHALLENGES CONTINUEThe 2010 3PL Study aims to better understand how shippers and 3PL providers continue to adapt and improve, albeit in an environment that is still braving significant economic uncertainty. Additionally, the challenges of supply chain orchestration, structuring and sustaining successful 3PL-customer relationships are still on the front burner. Overall, there is increasing clarity on the extent to which competent logistics and supply chain practices can lead to organisational efficiency. It is also becoming increasingly evident that the effective use of outsourced logistics services can be a key to this success.

As one supply chain executive puts it, “Today’s businesses are faced with significant economic volatility, and the ability to be changeable and adaptable is clearly a primary factor for success. Also included among these factors is the ability to structure and improve supply chains that can adapt and evolve as per business needs and environmental factors. 3PL can be a useful resource for companies striving to keep their supply chains current, flexible and adaptable.”

LOGISTICS & 3PL SERVICES EXPENDITUREShipper respondents to the 2010 3PL Study devote an average 11 per cent of their companies’ sales revenues to total logistics expenditures (amounts spent on logistics in 2009). The revenues among regions studied are in the range of 9-13 per cent. In the survey, total logistics expenditure included transportation, distribution, warehousing and value-added services.

An average 42 per cent of the total is directed to outsourcing. In recent years, this number was 10-15 percentage points higher, depending on the region studied. A possible reason for this is that average expenditure for outsourced logistics services may have recently decreased at a faster rate than did total logistics expenditures. This implies that on average, shippers could scale back their expenditures for 3PL services faster than their total logistics expenditures. Average percentages of logistics spending devoted to outsourcing by region include: North America, 35 per cent; Europe, 49 per cent; Asia-Pacific, 51 per cent; and Latin America, 41 per cent.Longevity of 3PL use: Shipper respondents of the 2010 3PL Study clearly have significantly long experience with outsourcing logistics services (Figure 2). The average experience is of 13 years, with 52 per cent having used 3PL of some type for 11-30 years. Change in use of 3PL services: A significant number of shippers are shifting their use of 3PL:• Increasing use of 3PL services: Overall,

65 per cent of shipper respondents report an increase in their use of outsourced logistics services, and 78 per cent of 3PL respondents have made similar observations among their customers. Region-wise, 57 per cent of North American shippers as well as 65 per cent of European shipper respondents, 81 per cent of Asia-Pacific and 69 per cent of Latin American shippers have increased the use of outsourced logistics services. It is important to note that shippers reporting an increase in the use of

outsourced logistics sources may have increased outsourcing in comparison to insourcing, but the overall spend on 3PL may have decreased due to various other factors. For example, the fees some shippers are paying for 3PL services may have declined, and some may be changing the mix of 3PL services they purchase and use.

• Returning to insourcing: An average of 24 per cent of shipper respondents are returning to insourcing some of their logistics activities. And 36 per cent of 3PL respondents observe that some of their customers are also insourcing certain logistics activities.

• Reducing/consolidating the number of 3PL used: Nearly half (46 per cent) of shipper respondents are consolidating the number of 3PL they use, and 73 per cent of 3PL believe that customers are reducing or consolidating the number of 3PL they use.Based on these results, it seems that

while some shippers are considering a return to insource some of the logistics activities, the predominant move is towards increased use of outsourced logistics services.

3PL-SHIPPER RELATIONSHIP: CONTINUED PROGRESS AND IMPROVEMENTOverall, 89 per cent of shipper respondents view their 3PL relationships as generally successful, compared with 97 per cent of 3PL respondents. Region-wise findings for shippers are: North America, 92 per cent; Europe, 87 per cent; Asia Pacific, 90 per cent; and Latin America, 83 per cent.

Also, 68 per cent of shipper

21-30 Years17%

Average Number of Years = 13 Years

Shippers Report Significant Long-TermExperience Using 3PL

1-3 Years10%

4-7 Years15%

8-10 Years23%

11-20 Years35%

Figure 2

Source: 2010 15th Annual Third-Party Logistics Study

Current State Of The 3PL Market: Key Takeaways

• 3PL are critical for overall business success• Total logistics spending across regions on an average is 11 per cent • 3PL is increasingly being used for the long term• Most shippers and 3PL providers view their relationships as successful• A number of factors account for success of 3PL-shipper relationships• 3PLs have measurable impact, including logistics cost, fixed asset

& inventory reductions, order cycle time, order fill rate and order accuracy

• Shipper outsourcing choices are consistent• Transportation is mostly outsourced even though some choose

not to• IT remains a key component of 3PL-shipper relationships.


respondents indicate that 3PL provide them with new and innovative ways to step up logistics efficiency, while 95 per cent of 3PL providers believe that they provide customers with new and innovative ways to improve logistics efficiency. In the current year, a gap persists between the ratings that shipper respondents assign to various aspects of the 3PL-shipper relationship and more positive evaluations provided by the 3PL respondents. This gap should be an eye opener for most 3PL, and may have come up due to a perceived lack of innovation and proactive, continuous improvement suggestions made by 3PL.Success Factors: Survey findings suggest a number of elements that make for the most optimal 3PL-shipper relationships:• Openness, transparency and good

communication: About 70 per cent of shipper respondents and 64 per cent of 3PL report that they are satisfied with this factor as contributing to successful experiences with each other. An important observation is that compared with shippers, 3PL are less satisfied with these attributes of relationships with shippers. This finding will be closely tracked in future studies to monitor whether 3PL and shippers are able to achieve a higher level of proficiency in meeting these objectives.

• Agility and flexibility to accommodate current and future business needs & challenges: There is a striking difference between how shippers and 3PL perceive one another. Specifically, 72 per cent of shippers agree that their 3PL are sufficiently agile and flexible to accommodate their current and future business needs & challenges. While, 98 per cent of 3PL report that their customers expect them to be capable in this dimension. One interpretation of these results is that while 3PL recognise the objectives to be met, there is room for further improvement.

• Interest in ‘gainsharing’ between 3PL and shippers: A little over half of shipper respondents (56 per cent) are showing interest in ‘gainsharing’. Moreover, 52 per cent of 3PL respondents agree that their customers have become more interested in

‘gainsharing’ arrangements. Considering these percentages, as well as discussions with industry experts, it appears that the recent economic turbulence has incited a greater interest on part of shippers to share risk as an important attribute of a successful relationship. According to a retailer, “Negotiating, tracking and managing gainsharing agreements is difficult. It may require significant investment by the 3PL, and is difficult to recover, especially if that capability becomes the new ‘what is expected’.”

• Interest in collaborating with other companies, even competitors, to achieve logistics cost and service improvements: About 68 per cent of shipper respondents and 80 per cent of 3PL have expressed interest in these strategies. Considering the potential benefits to both shippers and 3PL that can result from collaboration, a sizeable percentage is seen, which suggests a true interest by both parties working with other companies, including competitors. A possible explanation for this is that the global economic slowdown has clearly indicated that companies of all types need to take the necessary steps to reduce cost and enhance service. Moreover, the concept of collaboration of people, process and technologies can significantly help achieve these objectives.

Measurable Benefits: Shipper respondents report achieving measurable benefits with the use of 3PL services (Figure 3).

Users report improvements in order cycle time, order fill rate and order accuracy resulting from the use of 3PL; however, the absolute levels of these

metrics are lower than those reported in the 2009 3PL Study. Moreover, the impact of the global economic turbulence may be responsible here, and it is important to look at these changes once again in the next year’s study (2011 3PL). Finally, 60 per cent of the shipper respondents reported that their use of 3PL has resulted in ‘year-over-year incremental benefits’, though only 52 per cent of 3PL respondents agree with this finding. This result is slightly unusual, in that the shipper average is higher than the 3PL average. A possible explanation is that 3PL providers see greater opportunities for improvement in year-over-year incremental benefits, and hence the lower average reported.Information Technology: IT is a necessary element of 3PL expertise, but there exists a gap between shippers’ satisfaction with their 3PL providers’ IT capabilities, known as the IT Capability Gap (Figure 4). In 2010, there has been improvement in the percentage of shippers who indicate satisfaction with IT capabilities of their 3PL. This IT Capability Gap has received considerable attention in recent years. The narrowing of this gap is consistent with the finding that 69 per cent of 3PL believe their customers are satisfied with the IT services provided by 3PL. Although this figure is higher than the 54 per cent of shipper respondents in 2010, it indicates a positive development in the relationships between 3PL and shippers.What 3PL Users Outsource and What 3PL Providers Offer: There is a large percentage of shipper respondents who outsource specific logistics activities (Figure 5). Following are some general observations about the 2010 results and the contrasts they reveal from previous years:

• The most frequently outsourced activities tend to be those that are more transactional, operational and repetitive. These include domestic and international transportation (83 per cent & 75 per cent, respectively, across all regions studied), warehousing (74 per cent), customs brokerage (58 per cent) and forwarding (53 per cent). However, usage varies across regions. Based on the results, one should not consider these activities as ‘commodities’, even though

3PL market dynamics, continued

Shippers Report Measurable Benefits From Use Of 3PL

Results All Regions

Logistics Cost Reduction (%) 15%

Logistics Fixed Asset Reduction (%) 25%

Inventory Cost Reduction (%) 11%

Average OrderCycle Length

Changed From 17 days

Changed To 12 days

Order Fill Rate Changed From 73%

Changed To 81%

Order Accuracy Changed From 83%

Changed To 89%


Figure 3


they are sometimes thought to be common, routine activities and processes.

• The less frequently reported activities are slightly more strategic, customer-facing and IT intensive, eg, IT services, supply chain consultancy services, order entry, processing and fulfillment, fleet management, customer service and LLP/4PL services.

• In 2010, the percentage of 3PL users outsourcing individual logistics activities (versus overall outsourcing) was higher for respondents from Europe and Asia-Pacific compared to that for North America or Latin America. Over the past several years, the Latin American market continues to provide significant latitude for increased use of 3PL services.

• Likely due to impacts of the globally volatile business environment, the percentages of shippers outsourcing international transportation declined from a reported 84 per cent in 2009

to 75 per cent in 2010. Over the same period, the use of customs brokerage declined from 71 per cent to 58 per cent and that of forwarding services declined from 65 per cent to 53 per cent. Transportation and warehouse

operations spend continue to dominate the total logistics expenditures managed by third parties.• On average, transportation spend

represents 54 per cent of total logistics expenditures. By region, these percentages are North America,

41 per cent; Europe, 64 per cent; Asia-Pacific, 67 per cent; and Latin America, 54 per cent. • Warehouse operations spend represents an average 40 per cent of total logistics expenditures. By region, it is North America, 39 per cent; Europe, 44 per cent; Asia-Pacific, 48 per cent; and Latin America, 27 per cent.

According to the 2010 3PL survey, many 3PL provide a wide range of services to meet the needs of their customers

(Figure 6). Most of the responding 3PL offer the full range of logistics services (Figure 7). Further, the typical model includes a 3PL to offer a substantial range of services to respond effectively to their customers and their logistics needs.

NON-USERS OF 3PL SERVICESThe Annual 3PL Survey also reaches a sizeable number of organisations that do not currently utilise 3PL. These respondents were asked about reasons for not choosing to outsource at present, most common of which are as follows: • Logistics is a core competency at their

firm (19 per cent) • Cost reductions would not be realised

(15 per cent) • Control over the outsourced functions

would diminish (14 per cent) • Logistics is too important to consider

outsourcing (13 per cent) • Service level commitments would not

be realised (11 per cent) and • Availability of more in-house logistics

expertise than 3PL providers (10 per cent). In addition, 8 per cent of respondents

indicated their reason for not outsourcing as difficulty in integrating their IT systems with those of the 3PL.

NARROWING THE 3PL-SHIPPER GAPWith the role of both shippers and 3PL critical in a supply chain, there is a need to understand how shippers and 3PL providers continue to adapt and improve in an unpredictable economic environment. Therefore, in the future, collaboration becomes a necessity for both to overcome issues affecting logistics and SCM in volatile markets.

Courtesy: John Langley, Jr. PhD and Capgemini Consultant

100%

80%

60%

40%

20%

0%2002 2003 2004 2005 2006 2007 2008 2009

IT Capabilities a Necessary Element of 3PL Expertise Shippers Satisfied with 3PL IT Capabilities

2010

IT“Gap”

89%85%

91% 90% 92% 92% 92%88%

94%

54%

42%37%

42%35%

40%42%

33%27%

The Gap Continues Between Shipper Expectations andExperiences of 3PL IT Capabilities

Figure 4

Shippers Continue To Outsource A Wide Variety Of Logistics Services

Outsourced Logistics Service

User Percentages

All Regions

North America

EuropeAsia

PacificLatin

America

Domestic Transportation 83% 75% 94% 89% 80%

International Transportation 75 62 89 86 74

Warehousing 74 73 82 77 63

Customs Brokerage 58 57 54 68 65

Forwarding 53 47 54 70 48

Cross-Docking 38 33 47 42 34

Product Labeling, Packaging, Assembly, Kitting

36 32 41 41 34

Reverse Logistics(Defective, Repair, Return)

35 27 47 46 25

Transportation Planning and Management 31 32 32 30 26

Freight Bill Auditing and Payment 28 40 22 23 15

Information Technology (IT) Services 20 20 15 19 25

Supply Chain Consultancy Services Provided by 3PLs

18 20 11 25 17

Order Entry, Processing and Fulfillment 16 17 11 21 14

Fleet Management 15 15 17 14 20

Customer Service 13 9 10 21 15

LLP/4PL Services 13 9 13 16 19


Figure 5


INSIGHTS & OUTLOOK 3PL: INTEGRATING CORE COMPETENCIES

THE advancements in global business have given logistics service providers an opportunity to provide integrated services. These integrated or ‘bundled’ services are also a necessity for customers who find it easier to deal with a single provider for movement of goods. The services provided by third party logistics (3PL) firms are a mix of transportation, warehousing, cross-docking, inventory management, packaging and freight forwarding.

In today’s competitive market, paying more attention to customer needs is the only way to win and retain them. Currently, 3PL providers are of immense help to customers and present a huge opportunity for growth in the country. Thus, by outsourcing their supply chain management functions and services to 3PL providers, companies can focus on core business activities. With the right service provider, companies can also ensure real-

time information on the movement of goods and reduced overall costs.

With the need for services set to grow, based on a robust manufacturing growth rate, the Indian 3PL market is expected to reach $3.6 billion by 2012. Thus, to benefit from this opportunity, providers will have to strengthen their supply chain management and increase market penetration.

Globalisation of manufacturing systems coupled with technology advancements has compelled companies across verticals to avail the cost-saving potential of

outsourcing. This is expected to contribute to the increasing need for integrated logistic solutions, which is the niche of all 3PL service providers.

THE CATEGORISATIONProviding end-to-end solutions, integrated service providers are asset-based or management-based companies that supplement their services with services needed by the clients. Seeing this potential, the 3PLs have now begun to step up their services as well.

Amit Dhingra, General Manager

SHIVANI MODY

With rapid growth in the global logistics industry, Indian service providers face stiff competition from multinational companies having the expertise and financial strength to provide end-to-end logistics services. Also, globalisation has increased the need for a single logistics provider that can provide all-round services. Thus, domestic players need to integrate their core competencies to become one stop shop for full range of logistics services.

Customers are now seeking a single 3PL provider who can handle their entire supply chain. With a single service provider, the liability of goods remain at one point. Also, dealing with one provider for the entire service gives the customer peace of mind. AMIT DHINGRA, GENERAL MANAGER-INDIA, MENLO WORLDWIDE LOGISTICS INDIA

Illustration By: Sanjay Dalvi


India, Menlo Worldwide Logistics India, informs, “Indian companies had started off by providing road transportation services. Moving ahead, they are now providing the complete gamut of services, including warehousing and distribution, international transportation as well as other value added services. They have also incorporated backward and forward integration into their offerings. Several domestic companies have developed the

expertise to provide services comparable to those provided by multinational corporation (MNC) service providers.”

ROADBLOCKS AND WAYS TO OVERCOME THEMInfrastructure development is crucial as it acts as a supporting factor to encash the emerging opportunities in logistics. Thus, the government is now focussing on developing highways, port connectivity, dedicated freight corridors and establishment of free trade warehousing zones (FTWZs) through public-private partnership (PPP) projects. The Indian

Railways has also joined the bandwagon to provide the necessary service for transportation. Plans are in place to set up multi-modal logistics parks jointly with private players. Many such areas are opening up, which offer huge

investment potential in the country.Furthermore, international logistics

service providers (LSPs) have the expertise in networking and handling exports. Apart from core logistics services like transportation and warehousing, these LSPs offer value added services such as customs clearance, freight forwarding, import/export management, inventory management, assembly/installation, packaging & labelling and distribution. A major advantage of these LSPs is their expertise in after-sales support and efficient handling of reverse logistics.

Another advantage for an international LSP is that they use technology to increase efficiency of their supply chain. Indian providers are still far behind in terms of providing the same level of technology solutions to customers, and will take time to be at par with their global counterparts.

“Besides the infrastructure issue, domestic 3PLs face stiff competition from MNCs. This creates a major hurdle while providing import and export services internationally. With MNC logistics companies focussing on the emerging potential in the Asian region, especially

Few services offered by 3PL service provider:

• Dedicated contract transportation and transportation procurement

• Inventory management• Logistics management and consulting• Freight audit and consulting• Shipment tracking and tracing• Reverse logistics and value-added services

The international logistics industry is mature, organised and systematic. While in India, companies are now ramping up their services to become a total solutions provider. The Indian 3PL companies will have to prepare themselves to provide the best solutions for complex logistics requirements in a cost-effective way. RAKESH CHIMANE, BUSINESS DEVELOPMENT MANAGER, CH ROBINSON

WORLDWIDE


with the rapid growth of India and China, sustaining the momentum in the long run will be the key for LSPs. Pricing concern may also take a different turn. With an increasing number of customers looking for a complete end-to-end and cost-effective solution, the need for an integrated service provider has become all the more important,” believes Rakesh Chimane, Business Development Manager, CH Robinson Worldwide.

While the issues of weak infrastructure, poor connectivity and complex tax regimes have bogged down shippers and 3PLs in the past, the long-term outlook is positive for this industry. Further, the time is right for the 3PL service providers to take off and provide end-to-end solutions in the country. Elaborating on the same, Dhingra says, “Customers are now seeking a single 3PL provider who can handle their entire supply chain. A provider needs a seamless connection and network. For the domestic market, the secondary network development and distribution plays an important role. With a single service provider, the liability of goods remains at one point. Also, dealing with one provider for the entire service gives the customer peace of mind.”

On the need to provide better services, NG Somashekar, Senior Manager, Surface Lines Cargo and Logistics, informs, “A major challenge today is the competition from MNCs, as they have the experience and financial capability to provide better services. Thus, we need to gear up our services. Currently, our advantage over MNCs lies in lower rate factor, improved customer care, end-to-end services, coupled with goods security. However, one area that MNCs win over us is the international range of services they provide. As part of our international offerings, we have to outsource the requirement and depend on other providers.”

OPPORTUNITIES ABOUND IN INDIAWith a buoyant economy, a large pool of young people and increased consumer spending, the country is witnessing growth in all verticals. This has resulted in an increase in the number of 3PL providers in the country and into development of better services for customers as well, eg, IT track and trace capability. In the next five years, the logistics industry is set to grow by over 9 per cent year on year. Coupled with time, investments in the infrastructure sector are expected to reach the $350 billion mark. This would help in increasing efficiency and productivity of the transport system, which would thereby result in lower transit times.

Dhingra believes, “Slow development of infrastructure such as port infrastructure and warehousing projects has reduced the pace of growth. However, these issues are now being addressed. The online track and trace capability has been appreciated by customers and is set to grow in the coming years. The growing economy has also accelerated the growth of the logistics sector. Today, the industry is in the maturation phase with regards to the understanding of services and is moving from unorganised activities towards an organised approach.”

The complexity of supply chains has

increased all the more with globalisation heightening the importance of logistics and a large number of companies looking at sourcing, manufacturing and distribution on a global scale. Several companies are now entering the international imports and exports space in India.

Further, many MNCs are now setting up base in the country. And to cater to these MNCs, a number of global logistics providers are also setting up businesses here. Chimane opines, “The international logistics industry is mature, organised and systematic. While in India, companies are now ramping up their services to become a total solutions provider. Customers of today prefer value-added services such as real-time updates, door-to-door pick up and air & ocean freight. The Indian 3PL companies will have to prepare themselves to provide the best solutions for complex logistics requirements in a cost-effective way.”

On the growing opportunity, Somashekar says, “We have seen major growth driven by online orders for international transport of goods. These international customers understand our price advantage and see value in trained personnel. Also, our people with over 10-15 years of experience in handling queries have an edge over those with only 1-2 years of experience. Problem solving thus becomes a strong forte for us.”

The government is also concentrating its efforts towards the growth of the logistics sector. Development of Special Economic Zones (SEZs) and connectivity, implementation of Goods and Services Tax (GST) and warehousing development are some of the projects on the anvil. Dhingra says, “With GST implementation, we will

see consolidation of warehouses and strengthening of distribution networks. Improvement in infrastructure and networks will help 3PL providers enhance their services. Also, with the logistics sector on a growth spree, there is major opportunity for end-to-end services.”

With a strong outlook for the logistics sector and expertise brought into the country by MNCs, the time is just ripe for 3PL providers to step up their services and derive maximum advantage from this emergent market.

3PL: Integrating core competencies, continued

A major challenge today is the competition from MNCs, as they have the experience and financial capability to provide better services. Thus, we need to gear up our services. Currently, our advantage over the MNCs lies in lower rate factor and improved customer care. NG SOMASHEKAR, SENIOR MANAGER, SURFACE LINES CARGO & LOGISTICS

GGLOBALISATION OF MANUFACTURING SYSTEMS COUPLED WITH TECHNOLOGY ADVANCEMENTS HAS COMPELLED COMPANIES ACROSS VERTICALS TO AVAIL THE COST-SAVING POTENTIAL OF OUTSOURCING. THIS IS EXPECTED TO CONTRIBUTE TO THE INCREASING NEED FOR INTEGRATED LOGISTIC SOLUTIONS, WHICH IS THE NICHE OF ALL 3PL SERVICE PROVIDERS.


INSIGHTS & OUTLOOK DRIVING UP MARGINS

CUSTOMERS turn to logistics services providers (LSPs)/third party logistics (3PL) companies to run their warehousing and transportation operations more efficiently and at lower costs. Therefore, LSPs and 3PL need to ensure that they run as lean an operation as possible, and at the same time, make sure that they get paid for each and every service provided. Here are a few things LSPs and 3PL companies need to consider:• Attracting new business and quickly

getting new customers on board• Ensuring that they accurately bill every

service provided to customers• Providing superior customer service so

that each customer feels special• Evolving to offer more services that

the industry demands.The pressure is building. All they need

to do is deliver low-cost warehousing, exceptional inventory visibility, seamless freight management and accurate billing.

FOUR-POINT ACTION PLAN3PL companies can refine their business by leveraging technology and best practices in their logistics offerings by:

1. ADOPTING BETTER BILLING PRACTICES

Billing is a tricky business for 3PL companies. Customers are cost-sensitive and are concerned about “cost creep”. They watch invoices carefully and expect details for questionable charges. Therefore, generating bills is a nearly impossible task for 3PL companies using manual billing systems.

Manual billing systems usually include many people tallying transactions. The system has all the conventional trappings of working with paper. It is also error-

Third party logistics service providers are under pressure to meet the constantly growing demands of several companies that are utilising its services. Therefore, they not only need to focus on leveraging technology and best practices in their logistics offerings, but also provide value-added services to attract new customers.

ACTION PLAN FOR 3PLs


prone, inflexible and time-consuming. If a customer questions a charge, it is

often more costly to jump through the hoops to find the back-up data than it is to simply credit the amount in question. This is where the need for an automated billing system arises.

An automated billing system reduces the chance of leaving money on the table. Charges are generated automatically each time a warehouse worker performs a task. Billing can be done using time-based or activity-based methods, and all customers will have their own separate billing attributes. So, when a customer questions a charge, it is easier to drill down to the specific item level to find out the agreed upon charge for the service and the exact date and time the service was provided.

2. SPEED UP THE ON-BOARDING OF NEW CUSTOMERS

It is the proverbial Catch-22 situation. The 3PL company has a prospect that wants it to possess a specific capability, which it does not have. However, the 3PL does not want to purchase the new technology or go through the hassle of setting up the new capabilities until it actually has the customer. The moment the company becomes a customer, it wants services at its disposal. In such a situation, the 3PL company will have a lot of work to do to set up its account before the goods are brought in. But the process of taking on a new customer does not need to be so intimidating. A key part of this robust technology is the ability to rapidly get customers on board with a configuration wizard that can make it easy to configure the data elements for a new customer. Workflows can be different for different industries and customers, but a best-in-class solution can apply preset rules by the industry. Also, rules that are unique to the customer will ensure that the customer is on board in days and not in months.

3. SIMPLIFY MANAGEMENT OF A MULTITUDE OF CUSTOMERS

In a typical 3PL company’s warehouse with multiple customers, there is a need to perform different tasks based on specific industries, products and customers. The retail customer might want a 3PL company to capture attributes like style, colour, and size item. A food customer might want to know the lot number, best before & expiry dates.

In order to continually satisfy customers and win new business, there is a need to find a solution that will easily adapt to customers’ needs, instead of asking them to adapt their businesses to meet the software’s constraints.

For this, a flexible architecture that permits a rules-based approach to different workflows is needed. The solution should offer dynamic item configuration on a customer-by-customer basis.

In addition to direct customers, each customer has its own set of customers and suppliers as well. So, if a 3PL company is handling a customer’s computers, then it is sending the computers on to retail distribution centers; and each retailer has its own rules. Therefore, if there are multiple customers who have multiple vendors and multiple suppliers; everyone has multiple items and separate sets of rules. To manage this data effectively, a technology that enables rules to be granular to the customer, their customers and suppliers level is required. A multi-tenant architecture with a business process configuration tool will help enforce the exact supply chain preferences each customer requires.

4. EVOLVE TO OFFER CUSTOMERS MORE VALUE-ADDED SERVICES

Back in the day, 3PL was basically a commodity business, which sold rack space to store someone else’s goods and received a monthly storage charge in return. Since then, the industry has evolved dramatically, and 3PL service providers feel the need to expand their offerings to attract new customers. Many 3PL service providers are not prepared to profitably take on new customers, partially because outdated and inflexible IT systems would not allow it to.

The best way for a 3PL company to set itself apart from the crowd is to offer extended value-added services that can range from repackaging to relabelling, kitting and light manufacturing. A 3PL company that does not possess adaptable technology to support these services either needs to find a new solution, or spend a lot on customising the solution it has. A solution with an adaptable architecture will allow a 3PL company to provide new offerings and workflows inherent with value-added services. Adopting these will provide a 3PL company the flexibility to move up the chain and offer more complex processes

that will help attract more customers and thus, make more margin. A best-in-class supply chain solution will enable the 3PL company to meet stringent manufacturing requirements for quality, safety and traceability/genealogy.

STEP UP INVENTORY VISIBILITY FOR CUSTOMERSCustomers want to have access to up-to-the-minute information on their inventory status. The best way to provide them with real-time views into inventory, orders and even billing, is through a web portal solution. A secure web portal provides the basis for real-time information sharing and improved inventory visibility. This enables collaboration throughout the supply chain, giving customers the most accurate and timely view into their inventory and order status. Customers can make knowledgeable decisions if they have real-time visibility of demand, order status and potential exceptions. So, in case a customer wants a last-minute change of shipment location, it can access the up-to-the-minute information to know if that request can be accommodated.

Providing visibility is a must, but 3PL companies have to provide customers with data security as well. Since most 3PL companies have multiple customers, offering data security can be a real challenge.

The architecture for it needs to be in place so that while offering limited access to data, the liability of data security is avoided. A true, multi-tenant architecture will easily allow for data-dependent security controls. So, 3PL companies can grant access to any employee or customer through role-based security features.

HOW TO UNLEASH TECHNOLOGIES IN THE 3PL BUSINESS3PL service providers are in the same boat as most companies. Therefore, they need to sharpen themselves and become more productive, spend less, step-up offerings, and essentially do more with less. A more flexible supply chain management solution can help 3PL companies attract new customers, quickly bring them on board, provide new value-added services and run operations more effectively. That is going to make potential customers see 3PL service providers in a new – even better – light.

Courtesy: HighJump Software


INSIGHTS & OUTLOOK 3PL: CHALLENGES IN PARTNERSHIPS

SINCE long, a gap has been observed between the importance that shippers place on the information technology (IT) capabilities of third party logistics (3PL) and their satisfaction with those capabilities. This gap is termed as the IT Capability Gap. Ironically, as this gap is showing signs of narrowing, another has begun to emerge. A survey – Annual 3PL Study – was recently conducted, which included both shippers and 3PL in the survey group. It revealed a disparity between the way shippers and 3PL view the 3PL’ ability to deliver innovation. Most notably, 68 per cent of shipper respondents, versus 95 per cent of 3PL, indicated that 3PL provide shippers with new and innovative ways to improve logistics performance. Shippers participating in workshops for the Annual 3PL Study have frequently expressed this thought, and they want 3PL providers to offer new ideas by

drawing from their experiences in their own as well as other industries. Budgetary restrictions resulting from the economic crisis may also dampen the capacity of some shippers and 3PL for innovation.

But 3PL see another side to this story, which includes barriers erected by shippers that inhibit innovation. For example, in the same study, while considering collaborating on calculation of Total Landed Cost, 58 per cent of 3PL respondents reported that shippers are hesitant to share the required information with them. Shippers’ reticence to sharing strategy and data is a consistent finding in annual 3PL studies conducted so far. For example, in a report from the 2007 12th Annual Third-Party Logistics Study, some shippers said that they felt uncomfortable in trusting a 3PL with maintaining customer relationship or ensuring the availability of enough inventory in stock, either of which can

directly impact revenue. This was despite the fact that shipper respondents to that study ranked inventory management and customer order management as business processes that would benefit most from improved collaboration with 3PL.

An insight into shippers’ strategies enables 3PL to leverage best practices and industry knowledge from their own and other industries. With regard to the IT gap, both sides must be open to change. 3PL should probe for client needs and offer innovation accordingly. In turn, customers must be willing to share enough information to make this possible and worthwhile for the 3PL to pursue.

A RETROSPECTIVE ON 3PLThe theme of the 2009 3PL Study was the role of 3PL in helping shippers in a significantly unstable and volatile economic environment. With market conditions now

Growth of the 3PL sector depends on both shippers & 3PL companies to approach their relationships with collaborative spirit for conceptualising and implementing innovative solutions to logistics & supply chain problems. With the improving economy, shippers and 3PL now need to develop trust with each other to realise the benefits of this partnership.


looking up, the question that arises is: Did 3PL play a substantial role in helping shippers through these turbulent times?

In the 2009 3PL Study, shipper respondents said that they would use the strategies in response to economic volatility that would increase their use of 3PL, which included the following:• Reducing operating costs • Restructuring supply chain networks –

3PL have the tools to help design new networks and can provide operating assets (DC & transportation capacity) to make it happen.

• Reducing order-to-cash cycle time. • Expanding to new markets or helping to

support the launch of new products.Shippers also suggested that 3PL could

help them by increasing resource-sharing among customers, setting mutual supply chain optimisation targets, offering flexible service menu based on delivery date requirements and proactively communicating suggestions for improvement. However, if 65 per cent of shipper respondents have increased outsourcing, and if overall spending on 3PL as a percentage of total logistics expenditures is low, then perhaps the strategies mentioned earlier were not only implemented but also succeeded in reducing costs. In addition, shipper satisfaction levels remained consistent, as did metrics documenting improvements in costs, cycle times and fill rates resulting from 3PL services. In fact, 60 per cent of shipper respondents report that their use of 3PL has led to year-on-year incremental benefits, something that has clearly worked well.

THE CIRCLE OF STRIFEDuring the economic downturn, one of the hardest hit segments in the logistics sector was asset-holders. Most 3PL players are non-asset owning, and they contract with these asset-owning companies to provide services to their customers. During the recent period of economic volatility, when business volumes in many parts of the world were adversely impacted, these asset-based companies responded to decreases in demand by idling assets and reducing rates. With the markets now showing positive signs, the asset-owning companies are in a better position than they were earlier. Is this simply the circle of strife – a cycle the industry is stuck with? Or do the economic realities we see today require all parties to step back and find a way to remove the uncertainty and

waste? Already, transportation rates are creeping up in some sectors, and are increasing significantly in areas such as international air and ocean. There are signs that shippers are now feeling the shift, and are seeking strategies to mitigate their supply chain risk, which grows with rising rates, tightening capacity and a smaller number of surviving asset holders still in operation as a result of consolidation.

Some fast-moving consumer goods shippers have also reportedly begun sharing transportation and warehouse capacity to reduce logistics costs and improve sustainability. These steps will also help contain their risk, especially if these shippers are using their own assets to do so. Recently, 3PL are seeing some shippers becoming more involved in insourcing certain logistics activities and/or consolidating the number of 3PL they use. Taking the cost-saving measure of consolidation a step further, the question is: Will shippers also take the initiative to form communities to achieve horizontal collaboration, or will 3PL/4PLs step in and take the lead? Both asset-owning and asset-light suppliers have opportunities to offer shippers alternative solutions to reduce additional costs caused by the global economy’s circle of strife. In addition, shippers and 3PL should spend more time discussing alternative sourcing and shipping opportunities to lower risk exposure and costs caused by uncertainty.

3PL VALUE ADDSFor 3PL serving life sciences sector, two evolving regulatory areas are driving the need for data management: e-pedigree and, potentially, temperature tracking.

A database recording movement of drugs, required to comply with emerging e-pedigree regulations, is also needed. If not working within the government, 3PL are well-positioned to operate as e-pedigree clearinghouses as well.

3PL can also link together all stages in the supply chain for industries requiring temperature tracking, particularly if speculation proves true and tracking becomes a requirement down to the individual package level. For example, a 3PL could potentially track a package containing a temperature-sensitive drug all the way to a physician’s office. Here, they can then provide support for office personnel to upload temperature monitor data to a 3PL-maintained web site. The 3PL could then provide an alert to the

drug’s manufacturer or distributor, who would review in-transit temperature data to confirm whether the drug is safe for use. The 3PL would then advise the physician’s office via an e-mail, or even a phone call if there is a serious issue.

With regard to fast-moving consumer goods, another 3PL value-add opportunity includes resource sharing. As the coordinator of multiple transportation modes and warehouse assets, 3PL are well positioned to help merge shipments across multiple companies, as well as leverage the transportation assets owned by such companies (eg, trucks, air, ocean, rail, etc).

As the responsible party for many supply chain components, 3PL providers are similarly well-positioned to provide Total Landed Cost calculation as a service, particularly if indicators of improving 3PL IT capabilities are correct.

KEYS TO FUTURE SUCCESS FOR 3PL AND SHIPPERSInnovation in 3PL-shipper relationships will be a major factor in the success of these relationships. A part of the shipper community always prefers to retain the most strategic aspects of supply chain operations and then tactically use 3PL to help accomplish their business goals. However, a large component of the shipping community relies on 3PL for innovation in design and execution of these services.

Future growth and development of the 3PL sector will be highly dependent on the ability of the providers to work effectively with their shipper/customers to conceptualise and implement innovative solutions to logistics and supply chain problems. The key to the relationship between shipper and 3PL includes:• The trust required to meet agreed-

upon quality standards, eg, in service level agreements.

• Willingness to share the information essential for developing a supply chain strategy and for understanding how total landed cost can be improved to optimise the supply chain.Therefore, only when both parties

commit themselves to work together effectively, will the power of a meaningful 3PL-shipper relationship become a reality and help advance the value of their relationships.

Courtesy: John Langley, Jr PhD, and Capgemini Consulting.

36 • SMART LOGISTICS • DECEMBER 2010

INSIGHTS & OUTLOOK ONE ‘Q’ MANY VIEWS

With companies concentrating on managing their supply chain mechanisms in a better way, India infrastructure and increasing awareness about efficient logistics practices have led 3PL services to such booming prospects, India has opened a new spectrum of opportunities for both Indian as well opinions on how Indian companies can gain a competitive edge over their foreign counterparts

INDIAN 3PLs: GAINING COMPETITIVE

PURNA PARMAR

The best advantage an Indian 3PL company has over its global counterparts is better knowledge of the Indian legal system, and therefore, a better understanding when it comes to logistics in smaller cities. Indian 3PL companies would thus, already have a huge network and infrastructure set up in the country, while establishing the same for a foreign company would be a difficult task. Similarly, capital investments like setting up a warehouse, distribution network would be more easier for an Indian 3PL company as compared to a foreign 3PL company.

YOGESH R ANTAD, CPM General Manager, Supply Chain – Functional Excellence,ABO – Supply Chain – Functional Excellence, Cummins India

With regards to gaining advantage over foreign companies entering the market, a major discerning factor is that there is always a need for an Indian solution as it is almost impossible to pick and drop from EU or the US, as Indian requirements remain rather unique. In addition, there is no global best practice that can be used under the circumstance... thus, the need to adapt to an ‘appropriate best practice’ for India emerges. Look at what is happening... the recent acquisition of AFL by FedEx is a good example. This should however, bring together the very best of Indian appreciation & understanding of its natural limitations, and the best practices from theexternal party, which will allow a great melting down of the old ideas about what can and cannot be done in India.

HARWARD JAMES-SCOTT, Chief – SCM, Gati

The Indian 3PL industry currently forms 10.8 per cent of India’s logistics industry. Even though the percentage of Indian companies outsourcing logistics has increased from 10 per cent a decade ago to close to 55 per cent currently, the 3PL market, valued at `7,800 crore, forms a small pie of the overall logistics business in India. Meanwhile, supply chain consultancy is now a separate business vertical as many clients and new entrants now seek to gain knowledge about it as part of a market entry or optimisation strategy. They may not need execution immediately but may need assistance in floating a request for quotation (RFQ) for the implementation.

JASJIT SETHI, CEO, TCI Supply Chain Solutions

DECEMBER 2010 • SMART LOGISTICS • 37

is witnessing an increasing demand for third party logistics. Continuous improvement in logistics be perceived as a far better way of controlling both internal and external logistics processes. With as foreign companies leading to buoyant competition in the industry. Here are some substantial operating in India, and the various demand trends observed in the industry.

EDGE OVER FOREIGN COUNTERPARTS

The Indian 3PL companies have a huge advantage over foreign companies operating in India. This is mainly with regards to infrastructure development in terms of distribution network and capital investment. By capital investment, we mean the physical deliverability, that is, the ability to cover the length and breath of the country the company can offer. While the storage capacity is also a great differentiating factor, an Indian company would know the land and its laws, so capital infusions in terms of warehousing is much higher in Indian 3PL companies. While for a MNC – where the appetite for risk is much lesser as compared to an Indian 3PL company – it is difficult to have such capital investments in infrastructure development. Moreover, Indian companies can also offer greater market penetration as compared to their foreign counterparts. Nevertheless, the foreign 3PL companies bring in the best practices from around the world and implement it in India. This gives them an advantage in terms of process and technical know-how.

ARIF A SIDDIQUI, Director, Coign Consulting

The Indian companies must leverage on their local knowledge to bring superior service deliverability and gain a competitive edge over their foreign counterparts. Indian 3PL companies have greater knowledge of the geographic diversity of India which needs varied logistics expertise for each region – a major challenge to be addressed by 3PL service providers.

N SUKUMAR, Sr VP – Supply Chain, Reliance Industries

Indian companies follow a strategy of being “asset heavy” and are investing in land banking. Most foreign companies follow an asset light and a leasing model on warehousing rather than buying land and building infrastructure. Due to land banking and owning the warehouses rather than leasing, Indian 3PL companies are able to provide stable and economical warehousing solutions in the long term. 3PL outsourcing has caught the fancy of the technology sector in India. Automotive manufacturers are looking at 3PL partners to outsource non-core activities like aftermarket parts warehousing, inbound to manufacturing, etc. 3PL companies are looking at value-added services (order management/kitting/reverse logistics, etc), and beyond the standard vanilla warehousing & transportation model. Most of the industry players are today concentrating efforts at deriving solutions post GST.

VIKAS ANAND, Director – Operations, DHL Supply Chain


VIEW FROM THE TOP VP – LOGISTICS PRODUCT STRATEGY, ORACLE

CRUCIAL ROLE OF TECHNOLOGYThere are certain areas in the logistics sector where technology can have a huge impact. Having the right technology in place can help companies increase their productivity. One of the areas is planning, where technology can help companies plan their shipments more effectively. This will help them to be more efficient in terms of utilisation of trucks, vehicles, containers, etc. In other words, they can carry out optimisation of shipments, thereby generating fewer trucks than what is required or reducing the distance to be covered for moving the same product. Another area of efficiency improvement is collaboration, which takes place between the companies that ship the goods and those that physically move the goods. Thus, sharing the information effectively with transportation providers allows shipping companies to optimise their assets in a more efficient manner. This includes optimising the use of drivers and minimising the idle time that reduces costs, which in turn reduces overall costs for the companies.

TECHNOLOGICAL ADVANCEMENTSOne of the most important technologies that we see across different markets is ‘mobility’. It involves the use of mobile devices to capture information at source as well as communicate the information to the workforce. In transportation, this means being able to send dispatch instructions to trucking companies so

HAVING THE RIGHT HELP COMPANIES INCREASE

“Sharing information effectively with

transportation providers allows shipping companies to optimise their assets in a more efficient manner,” opines Derek H Gittoes, VP – Logistics Product Strategy, Oracle, in an

exclusive interview with Sudhir Muddana. Excerpts…


that they are aware of what they are supposed to do. Also, it will help capture status information at the time when the truck picks up the goods, or when goods are delivered to the customer. Hence, we see mobility as one of the most important technology advancements. Another important technology, emerging in the next few years, is the notion of shared business network. For example, one transportation carrier may be doing business with multiple shipping companies, establishing a single network in which the communication of their shipment and other related information takes place. These are two major technology advancements that we see as critical in this business.

EMERGING TRENDSSome of the important emerging trends that we see are the consolidation of services from a single service provider. Here, for example, a logistics company, specialised in a particular type of service or serving a particular market, will be able to provide a menu of services. This is where technology becomes important, as they do not have to have the right platform to support multiple service offerings. Therefore, shipping customers need not go to multiple providers, instead they can avail the services of a single provider.

SUPPORTING A GREEN FUTUREThis is an area in which we have made a few investments with respect to our transportation product. Some of the ways in which we can help in this area include profiling the environmental efficiency of transportation carriers. Hence, if a shipper wants to reduce their carbon footprint and rely on third party companies to move their goods, then they should check the profiles of those companies and ensure that they work with companies that operate with new vehicles which have lesser emissions. For example, in the US, a programme is followed in which trucking companies can score their fleets, and thereby obtain an index factor. The higher the index factor, the more environment friendly will be their fleet. Therefore, shipping companies

can ensure that they do business with such companies more often. Another way is moving the freight wherever possible using the most effective modes of transportation. For instance, moving a container by rail rather than truck has a more positive impact on the environment.

REDUCING COSTSTechnology use can help logistics companies look at all orders and shipments that they need to move, for a single customer or across multiple customers. Thereafter, based on the estimated travel times, these companies can work out delivery windows (when the products need to be delivered), capacity and availability of trucks, determining an optimal plan that minimises the cost of actual distance to be travelled as well as minimises the truck capacity they require.

WHY USE TMS?The major reasons why LSPs should use TMS are as follows:• Help in business generation – The

market today is very competitive, and customers can choose from various logistics providers. Therefore, having a TMS in place helps a logistics company position itself more effectively in the market.

• To bring customers business on-board faster at lesser costs – Manual operations takes companies longer to accomplish customers business. Thus, it necessitates having a system in place that allows them to do the same in lesser time.

• To improve efficiency in internal operations – The system will help plan and execute transportation across multiple customers simultaneously. It will, therefore, help decrease internal operating costs.

FUNCTIONALITIES OF TMSThe functionalities basically fall into five categories:• Order management – Ability to

capture orders (sales orders, purchase orders, etc).

• Planning – Once the information is available on the orders and what needs to be moved, it becomes easy to develop an optimised plan for moving these orders in the most effective way.

• Execution – Once the orders are known, one can develop the plans and then execute them. In other words, this means communicating to a third party carrier.

• Monitoring – Capturing status information, ie, the current in-transit position of the vehicle or its expected arrival time at destination. This also includes tracking the progress through to its conclusion.

• Settlement – This includes the ability to process invoices for the transportation services provided, audit them and make payments accurately.

SUCCESS STORIESA number of companies have greatly benefited by implementing the TMS. Cisco Systems, for example, which is a large hi-tech manufacturer, used Oracle’s transportation system to achieve an estimated saving of 15 per cent in their transportation cost. Moreover, smaller companies like Tootsie Roll, a small confectionary candy manufacturer, could save 7 per cent of their transportation cost as well. Therefore, small, mid-sized and large companies definitely stand to benefit with the use of these technologies.

TOWARDS A POSITIVE FUTUREIndia is still in its early stages in terms of adoption of these technologies. Thus, particularly with transportation management, we are beginning to see some success with customers in the deployment or adoption of the transportation management. Many companies may not yet be convinced that they are ready for these technologies or that they can benefit from the technologies. However, the progress is quite visible, and few years down the line, I foresee that these companies will require less education about the benefits of these technologies.

TECHNOLOGY IN PLACE CAN THEIR PRODUCTIVITY


SECTOR UPDATE OIL & GAS LOGISTICS

TRANSFORMINGTRANSFORMINGFUEL ECONOMICSFUEL ECONOMICS

ONE of the basic, yet critical, necessities of the human race today, is fuel. Every facet of this necessity – be it oil, diesel, petrol, gas or petroleum jelly – is a must for the new world order. Every individual at any place, point or time is a user of petroleum products. To make sure that every individual’s requirements for petroleum products are met, a distribution network ensures that these products reach their final destination. Making available to each person the right product, at the right time, the right place & at the lowest cost and in optimum conditions of safety & security, is the key objective of oil & gas (O&G) logistics.

While some of the major countries that function in the O&G industry include countries in the Arab world and the US, the largest quantities of O&G discovered are found in developing countries. These producer countries export the greater part of their production to countries worldwide. On the other hand, developed

countries, which are also major energy consumers, are not self-sufficient in O&G – they are therefore, hydrocarbon importers. As a result of this geographical mismatch, enormous quantities of oil and gas have been and will – in the future too – be transported all over the world by sea, land and air.

O&G SUPPLY CHAIN IN INDIA The Indian O&G supply chain starts with the sourcing of crude oil. Elaborating on India’s share in the global O&G industry, Prashant Tarwadi, Analyst – Oil & Gas, CARE Research, points out, “Currently, India imports close to 80 per cent of its total crude oil requirement as compared to 46 per cent in 1994-95. Private players, such as Reliance and Essar, fully import their oil requirement, whereas, public sector entities imports are in the range of 65-78 per cent. The balance crude oil requirement is satisfied through domestic production which is dominated by ONGC.

Middle East contributes about 65-73 per cent of India’s total crude oil imports, followed by Africa with 15-20 per cent.” Adding further he says, “This crude oil is imported through ships and unloaded on terminals, where it is stored in storage tanks. The indigenously produced as well as imported crude oil is then pumped to refineries via a network of pipelines. Numerous products such as LPG, petrol, diesel, kerosene, fuel oil, etc. are produced from these refineries. While India is heavily dependent on crude imports, with a refining capacity of 184 MMTPA, it is self-sufficient in its petroleum product requirement with a net export of about 20 per cent of its refined product production. Refined products from refineries are transported to storage site or retail outlet through pipelines/rail/road network.”

INDIA VS GLOBAL O&G SUPPLY CHAINIn the Indian O&G supply chain, the rail

SUMEDHA MAHOREY

With fuel prices dictating the output of various industries worldwide, the logistics of the highly fickle yet strategically important oil & gas industry needs to be handled with utmost care and safety. Though, with its highly inflammable nature, this logistics is surrounded by multiple challenges, the key lies in planning and schedulling in advance to cater to the global market at the right time.


and road network transports a majority of O&G products, thus resulting in higher supply chain costs. Highlighting the reasons for the high cost of transportation in India, Gagan Seksaria, Associate Director – Transportation & Logistics Markets, KPMG, says, “In India, only about one-third of petroleum products are transported through pipelines, while in developed economies, such as the US, more than half of the products are moved by pipelines. This adds on to the cost factor.” Supporting this, Tarwadi points out, “In India, about 60 per cent of the petroleum products are transported by rail and road. Pipelines and coastal transfer account for about 30 per cent and 12 per cent of the overall movement. In developed countries, about 50-60 per cent of petroleum products are transported via pipelines. CARE Research estimates that transportation costs associated with rail and road are about 15x and 3x that of pipelines.”

Averring on the late adoption of technology in this sector, Tarwadi says, “Indian O&G has been slow in adopting IT in the supply chain management (SCM). BPCL was among the first to initiate implementation of ERP system as late as in 1996. The usage of IT tools remains a critical factor in the efficient functioning of this sector.”

Another major challenge is the extent of product adulteration/losses/pilferage prevalent in India. Tarwadi explains, “The

adulteration rate in India is relatively higher as diesel, LPG and kerosene are sold at below market prices. In contrast to India, most of the developed countries have market-determined pricing structure for petroleum products, which discourages any such practices.” Thus, to bring the Indian O&G supply chain at par with global standards, a few imperatives are needed on a priority basis. Highlighting on the same, Seksaria, says, “The need of the hour is to upgrade and expand logistics infrastructure (pipeline networks, port capacity, etc.), increase and integrate application of hi-end technology across the value chain and set up more Brownfield & Greenfield ports and refineries.”

KEY PARTICIPANTS AND THEIR LINKAGE The O&G supply chain consists of operators (oil companies), main contractors, sub-contractors and suppliers, extraction/exploration firms, product carriers (VLCCs, pipeline manufacturing/maintenance firms, rail, tankers), port terminals, refineries, inland depots/installation units, oil marketing companies (OMCs), point of sale (POS), SCM hardware/software vendors and supplier of equipments/parts to all the entities (offshore platforms, refineries, storage points, etc.). The Table I elaborates on the interlinking of

these entities in the supply chain. Explaining the key entities and their

functioning in this link, Tarwadi avers, “E&P companies are typically involved in exploration and production of oil & natural gas fields. Their profitability depends on the pricing of oil and gas charged to customers and efficiency of operation.” While the functioning of the rest of the entities includes: • Transmission companies (tanker

market): Crude tankers are hired by the charterer (typically oil companies) from the ship owner at freight rates chargeable on a day-rate basis on mutually agreed terms. Different types of chartering have different terms and conditions which primarily revolve around the transfer of control and risk between the charterer and the ship owner. Their profitability is governed by the demand for petroleum products and the ship capacities available in the market for chartering.

• Import terminals: Import terminals can operate in two ways: Firstly, the terminal operator may execute a supply agreement (SA) with exploration and production (E&P) companies whereby the terminal operator purchases the material from E&P companies and sells it to consumers. In India, LNG terminal operators such as Petronet

E&P company (operator for an oil field) ↔ Transmission companies (tanker or pipeline operator) ↔ Import terminal operator ↔ Transmission companies (pipeline, rail and road operator) ↔ Refining & marketing companies ↔ Distributors ↔ Retailers↔----------------------- Software solutions providers --------------------------↔

Table I

Parameter Offshore SCM Onshore SCM

Connectivity Offshore production well ↔ onshore storage/plant

Onshore storage/plant ↔ Refinery ↔ Marketing ↔ Distribution points

Mode of transport

Predominantly ships; minor quantity via helicopter or pipeline transfer

Pipeline, road and rail

Product transferred

From offshore well ↔ onshore storage: Raw crude oil and gasFrom onshore storage ↔ offshore well: Tubular parts, material, fuel, personnel, etc.

Crude oil, refined petroleum products, lubricants, etc.

Challenges • Extreme weather conditions• Minimum stocks requirement• Just-in-time operations due to space

constraints

• High inventory carrying costs • Risk of adulteration• Transportation losses• Price fluctuation of finished products

Critical check points

Monitoring of production is essential in order to avoid producers and shippers imbalance

Gauging end-user demand is critical so as to maintain inventories at optimum levels

Table II


LNG and Shell Hazira LNG terminal operates through this business model. Profitability of such import terminals depends on effectively sourcing petroleum products at lower prices and selling it to transmission companies at higher prices. Secondly, the import terminal may only provide access of its facilities to E&P producers and end-consumers at predetermined rates.

• Transmission companies (pipeline/rail/road operators): These companies usually sign transmission agreement (TA) with E&P companies, import terminals and marketing/trading companies to provide open access of its pipeline/rail/road network. The transmission companies are immune to the fluctuation in commodity prices as they do not purchase the material directly but only provide access of its infrastructure for transportation.

• Refining & marketing companies: These companies refine crude oil to produce numerous petroleum products, such as petrol, diesel, kerosene, etc. and sell it to the retail market. Given the critical importance of petroleum products in ensuring economic development, these companies are required to keep adequate inventories for both, finished goods and raw material, leading to higher inventory holding costs.

• Distributors & retailers: They are the eventual (POS) for the retail customers. Distributors and retailers are appointed by the R&M companies. They typically earn fixed margins on products sold.

• Software solutions providers: These companies provide various software modules such as finance & accounting, customer order & material management, etc. Major players in this segment include SAP, PeopleSoft, Oracle and other regional players.

OFFSHORE & ONSHORE FUNCTIONALITIES: A DIFFERENTIAL PERSPECTIVE The roles of offshore SCM typically differ from onshore SCM. Elaborating on this, Seksaria avers, “Today, with factors such as environmental risks involved in accidental oil spills, safe modes of transportation and additional (offshore) processes to ensure timely availability of equipment and parts (since stocking space on offshore platforms is very limited), management of O&G logistics is a critical factor for the success of

this industry. With respect to the modes of transportation, offshore management typically involves transportation by VLCCs and/or pipelines. On the contrary, onshore management may involve transportation of O&G by railways, roadways and pipelines. Further, managing the supply chain of repair works in response to any environmental or accidental damage is more complex and challenging in case of offshore than onshore locations.” Apart from this, highlighting some of the key differentiating factors between offshore and onshore SCM in O&G, Tarwadi enlists some parameters in Table II. Conventionally speaking, supply chains in the Indian scenario have been typically offshore-based, since most of the Indian hydrocarbons are in the offshore regions. However, the recent discoveries in the KG basin are likely to open up decent onshore SCM opportunities as well.

PRESSING ISSUES There are multiple issues that need to be addressed. Highlighting these, Seksaria avers, “Some of the key challenges like capacity crunch during loading/unloading/inland transportation, business concentration on select critical ports, relatively insignificant role of pipeline transfers, low application of advanced technology-based applications, need for contingency planning (for instance, in case of terrorist threats at critical ports/offshore

platforms), and relatively limited private sector investments. Additionally, the vast array of products ranging from highly inflammable petroleum products to heavy-weight cranes to drilling rigs accompanied by the scale of transportation varying from local/intra-city to global deliveries involving multi-modal movements further aggravates the infrastructural issues.” Delving in-depth, on this facet of the industry, Tarwadi points out the following challenges in O&G. • Non-discrete nature of petroleum

products: Movement in most of the manufacturing goods can be tracked using latest technologies such as RFID, bar codes, etc. However, such technologies cannot be employed in

case of petroleum products as they are in a continuous state of flux.

• Long and complex length of distribution chain: The O&G SCM is typically characterised by a number of production facilities, storage, bulk distributors, retailers and customers. Raw material (crude oil) and finished petroleum products may take weeks to reach final consumers. In the entire supply chain, the responsibilities of risk and control of the goods being transported changes several times. This poses challenges to SCM participants as the supply chain has to be managed over several weeks.

• E&P activities shifting to difficult terrain: Owing to depleting resources, many O&G companies have started exploring deep offshore fields. These fields have challenging environments with plenty of logistics issues.

• Integration of existing technologies with new modules: Most oil companies are highly fragmented in terms of their operations and often employ their internally developed tools/systems for supply chain management. For example, a typical downstream SCM involves items as mentioned in Table III. Integration of these different modules/systems is a difficult task.

• Absence of a centralised database to track cost of logistics and across

different modes of transport: As per industry estimates, logistics costs contributes 15-20 per cent of the overall operating expenditure in the upstream O&G industry. This cost escalation is widely believed to be a non-value added activity and logistics managers are under severe pressure to minimise costs. Furthermore, different modes of logistics such as rail, road and pipelines are managed differently using conventional office applications. Hence, a broad level view about the logistics costs cannot be formulated.

SAFETY MATTERS According to Seksaria, to mitigate the risks involved with oil spills, carriers

Oil & Gas logistics, continued

Crude procurement→ Storage→ Refining→ Storage→ Blending and dispatch

Management information system (MIS); trading software

Tank farm management modules

Simulation packages for optimisation such as HYSYS, PRO2

Tank farm management modules

Optimisation tools

Table III


should strictly abide by the IMO/UNEP guidelines. Above all, conducting regular safety and performance audits always remain indispensable to prevent mishaps. Apart from this, while managing the logistics of highly inflammable gasoline/gasoline-based products, all consignments must be properly ‘inerted’ so that the composition of oxygen is below eight per cent of the vapour mixture. Even during cargo operations related to crude oil, the tanks should be properly ‘inerted’. Typically, authorities tend to ignore this requirement during crude oil washing (COW). Further, while handling cryogenic products, such as LPG/LNG, a spill on the ship structure may result in the ship’s structural failure. Hence, automatic/semi-automatic flushing mechanism should always be ready. All electronic equipment should either be ‘intrinsically safe’ or else avoided in close vicinity of stations/port areas where highly inflammable products are handled/transported. Adding to the list, Tarwadi elaborates, “Petroleum products are typically highly flammable and therefore, storage/risk management costs are very high. Under the circumstances, financial losses can be very high in the event of an accident. For instance, IOCL reported a loss of `292.05 crore after a fire incident in Jaipur in October 2009.”

Adding further, he says, “Other issues like transit losses through pipeline typically average between 0.10-0.15 per cent of the total volume transported, as against 0.33-0.50 per cent in case of rail/road transport. Although the Government of India allows a maximum transit loss of one per cent for crude oil transport, the operators would aim for minimising transit loss as it would result in higher forgone revenue. For example, ONGC reported a transit loss of 1.18-4.31 per cent through 2004-08 from its three assets – Ahmedabad, Ankleshwar and Mehsana – leading to a loss of 5.05 lakh MT of crude oil or revenue loss of `73.38 crore.”

TECHNOLOGY: AN ENABLING POINT Today, industries in this sector have moved to e-commerce in a big way. Highlighting the enabling nature of technology in O&G, Anthony Aming, Business Process Instrumentation and Supplier eProcurement Manager – Enterprise Applications, Baker Hughes, avers, “Many companies have initiated e-commerce for documentation and movement of materials from truck terminal to pick up containers. Real time

flow of information using EDI has enabled the industry in a big way. Standardisation has also come up lately. A common terminology for all, as a result of standardisation, helps players to perform better.”

Some of the various SCM technologies adopted globally in O&G include Advanced Inventory Optimisation, e-Procurement, Materials Requirement Planning (MRP), Price Optimisation, Demand Forecasting & Planning, SC Performance Management, Advanced Planning & Schedulling, Enterprise Asset Management. Seksaria says, “These technologies assist in planning by individual product and channel of trade, planning over varying time periods and accounting for the economic impact of price fluctuation. Also, the technologies play a critical role in evaluating the available options for transporting various products to different depots, installations and POS based on demand forecasts and forward prices to maximise the margins.”

THINGS TO LOOK OUT FOR Major O&G players, who till date were only involved in exploration and extraction, are now looking forward to enter the distribution network. Some of the key areas to be considered while entering this sector, according to Seksaria, include, long-term demand prospects, technology developments, environmental risks, regulatory aspects (such as changes in excise and customs duty, and price regulation), offshore vs. onshore opportunities, and expected M&As resulting in increasingly complex supply chains. Elaborating further on the other aspects of this sector, Tarwadi lists out the following points that companies should look out for while entering this sector:• Efficient information flow between

different business groups: The petroleum industry is characterised by “silo” mentality where typically information does not get shared between various divisions. This makes the industry slow to respond to the change in end-user environment and subsequent losses.

• Efficient procurement strategies for raw material purchases: In the petroleum industry, supply of raw material (mainly crude oil) is cartelised and therefore, is a sellers market. Devising efficient procurement strategies along with hedging can substantially improve a company’s profitability.

• Focus on POS data rather than

intermediate data points: The turnaround time for the entire O&G supply chain usually take weeks. In such a scenario, intermediate SCM partners may get stuck with higher cost inventories and subsequent freezing in end-consumer demand. A more proactive rather than reactive response system is warranted under such circumstances. Analysing POS data may help companies strategise its supply chain strategies in order to avoid under /over stocking of inventories.

• Focus more on finished goods management rather than raw material requirement: Unlike in other manufacturing industries, where several raw materials are utilised to produce a finished good (for instance, the auto industry), the petroleum industry has one principal raw material, namely crude oil, and numerous finished petroleum products in huge quantities. These products vary in their usage from industrial application (diesel, naphtha, fuel oil, etc.) to retail consumption (petrol, diesel, LPG, etc.). Correspondingly, logistics of these products vary from B2B SCM structure to B2C structure.

• Relationship with public sector oil marketing companies is a key to success: Currently, public sector oil marketing companies (OMC) have a giant share in the distribution of fuel for retail use. With stringent qualification norms and higher initial capital outlay, a healthy relationship with these OMCs would be a key to success.

ON THE BRINK With fuel prices dictating product prices worldwide, a logistics player needs to keep his eyes open for the minutest of details to emerge as the key enabler for the industry to gain its margins. Advising O&G companies on the same, Seksaria avers, “SCM companies should do better planning and schedulling in advance, so that minimal delay occurs in port-based activities. This would save demurrages. Additionally, using advanced technologies and state-of-the-art facilities would curb handling losses.” Thus, with multiple complexities and the urgent nature of this business, the efficiency and the criticality with which the logistics of this niche sector needs to be catered to remains an important factor in the success of this industry.


SL EXCLUSIVE LESS THAN TRUCKLOAD

SUDHIR MUDDANA

The logistics sector, which contributes largely to India’s GDP, is faced with the challenge of reducing cost burdens – mainly transportation costs. The need for new methods to reduce this cost burden is required. Therefore, it is time to go beyond traditional thinking and look at the larger picture, wherein, companies can transport their product, from one point to another by spending the least.

LOGISTICS plays a vital role in the overall gross domestic product (GDP) of a country – especially in India where it contributes to almost 13 per cent of the country’s GDP. There are certain costs involved in logistics – the major one being transportation – which is an overall cost burden on the sector. Therefore, it is essential to analyse ways to reduce this cost burden.

In India, goods are transported via air, rail, water and road. Although rail seems to be the most ideal mode for transporting goods, it has to follow a number of timetables while transporting them. Therefore, many companies prefer to transport their shipments using trucks. Initially, freight carriers offered full truckload (FTL) services, wherein the FTL carrier would move full containers or

trucks carrying one customers goods. Even if the customer did not have volumes to fill the truck, they still had to pay for the whole truck. This had a huge impact on logistics costs, thereby increasing the cost of the products.

Over time, the industry began using a new service called less than truckload (LTL). Here, the LTL carrier moves goods from multiple customers on one truck.

EDUCING LOGISTICSEDUCING LOGISTICS

BURDENSBURDENSCOSTCOST


WORKING OF LTLA number of freight and trucking companies offer less than truckload service for businesses that need only a small shipment of goods to be transported. With this service, the shipment is delivered along with various other shipments and, unlike in FTLs, is usually not delivered directly to a destination. Here, the LTL freight operator has a number of vehicles that collect shipments from its customers within a certain area.

After completing the daily collection, the shipments are then moved to a terminal/hub where the vehicles are unloaded. Each shipment is weighed and rated in order to process the customer’s bills. The individual shipment is then loaded on to a vehicle, which contains shipments from other customers, bound for the same geographic location. Outbound shipments are trucked to appropriate regional terminals, where

they are unloaded. After shipments reach the terminal at the destination, they are sorted and placed on local vehicles for the next step of delivery.

BENEFITS OF USING LTL SERVICEA major advantage of using an LTL carrier is that the price of transporting a shipment using an LTL carrier is significantly lower than an FTL carrier. The LTL carrier usually competes with parcel carriers, who generally do not accept shipments weighing more than 70-100 pounds. LR Sridhar, MD, Sical Logistics, says, “The primary advantage of LTL shipping is that it reduces shipping costs. Thus, instead of paying higher rates to a parcel carrier for delivering shipments, companies can take advantage of lower trucking rates. LTL is advantageous for trucking companies because it allows them to extend their business to smaller companies as well.”

Elaborating on the advantages that LTL services offer, Pirojshaw Sarkari, CEO, Mahindra Logistics, avers, “In this case, one need not wait to have a load that justifies deploying a vehicle. This can be done when time-bound deliveries are required or when door delivery is imperative.”

HIGHER TRANSIT TIMEAlthough the use of LTL services certainly has a huge cost benefit, an LTL shipment may take longer than a full shipment to be delivered. The reason for the delay is that it does not follow a direct route – from the shipper to destination. Since LTL transit times depend solely on the makeup of the network of terminals

operated by a carrier, it is important to build a strong point-to-point network in the country. “LTL is definitely more time consuming than FTL, as a definite route is not followed because shipments are from multiple customers. The general route for FTL is point-to-point but that in LTL is hub-to-hub and then hub-to-destination. For reducing delivery time, choosing the right hub is important,” explains Vineet Agarwal, Executive Director, TCI.

He further continues, “There should also be a checkpoint on the route between hubs to avoid delays. For hub-to-destination delivery, smaller vehicles must be used for intra-city delivery wherever possible so that there is no entry-exit problem. This can considerably save time utilised for delivery. With better roads, transit times of even LTL consignments have also significantly reduced in the last five years or so.”

LTL VS FTLUnderstanding the benefits and the higher transit time, the questions that now arise are: When is the use of LTL more effective than FTL? What are the parameters to consider while selecting the type of service to transport goods by truck? Answering these questions, Agarwal says, “When the customers do not have enough cargo for a full container (FTL), then LTL is the most effective option. LTL carrier moves goods from different customers on one truck and thus, is cost-effective. Also, it is most cost-effective if delivery is not time-bound.” Considering a customer’s perspective, Sanjiv Kathuria,

The way forward is for major service providers in the organised sector to set up a central body that frames guidelines and standards, organises workshops & courses and interacts with the government and academia. The government should also recognise logistics as an industry that requires special attention. LR SRIDHAR, MD, SICAL LOGISTICS

Cost and technology integration (tracking and visibility) are the two areas that pose some challenges. A defined, long-standing relationship with an LTL operator addresses these to a large extent. PIROJSHAW SARKARI, CEO, MAHINDRA LOGISTICS


Director – Sales & Marketing, TNT India, avers, “LTL is considered to be more effective when the shipment weighs less than three tonne and there are multiple shipments to be delivered to multiple destinations/customers. FTL is used frequently when there is a bulk shipment from a single origin to be delivered to a single destination/customer. LTL is also more effective when the shipment is required urgently and the customer is unable to consolidate shipments to an FTL. Express service providers, such as TNT, specialise in small- and medium-sized shipment, which is door-to-door.”

According to Sridhar, LTL is more advantageous in the times of a trade downturn, similar to that seen in the previous two fiscals. In such times, when the volumes are low, a full container load is not viable. Even in favourable times, small and medium enterprises (SMEs) do not move large volumes. Thus, LTL is a more economical option for such companies.

OVERCOMING HURDLESHigh transit time and good technology are the major challenges faced while adopting/deploying LTL services. Handling such a huge network of trucks and terminals in the country requires good use of technology to further reduce costs and the overall transit time. According to Agarwal, one of the major challenges for LTL users is: the extended transit time and managing the consequent pipeline inventory. Providing a solution to redress these problems, he says, “Better planning and scheduling of dispatches can help reduce the pipeline inventory. Identification of a correct service provider, who provides regular LTL services to major stations and works with them, would also help avoid transit delay glitches.

Another challenge is the damage to consignments due to multiple handlings. This can be avoided by using service providers who use mechanical loading/unloading equipment at their hubs, which will help prevent damages to a large extent. For example, all of TCI’s hubs

are equipped with small cranes and other material handling equipment, such as pallet trucks. Also, some hubs have forklifts for safer and easier handling of consignments during transit.”

Kathuria adds, “Paperwork for multiple shipments, delays at check posts, underdeveloped road networks are some of the difficulties faced by LTL. Improvements in the above-mentioned constraints would help LTL providers enhance their service levels and build a world-class distribution system, which is the need of the hour.”

CONSIDERING PRECAUTIONSWhen using the LTL service, each individual shipment is handled several times from the time it is picked up from the customer till the time it reaches its destination. Therefore, it is crucial to ensure that the goods are packaged properly to protect it from scuffing, vibration, crushing, dropping, humidity and condensation. Proper packaging freight serves several purposes:• It helps protect the freight from

handling and transit damage • It helps protect one freight from being

damaged by another • It helps reduce package pilferage • It helps avoid loss situations, such as

those in which some of the freight is separated from the rest and lost in transit. As shipments travel on various routes

and use a large number of trucks, they are subject to misrouting or misloading. Thus,

it is a good practice to put the tracking number on all sides of each piece of freight. In addition, if the destination state and zip code are affixed to each side, there are less chances of misloading. Therefore, it is a good practice to affix a relatively large label that has important tracking information, eg, carrier code, tracking number, destination and destination zip code of the shipment. This information makes it easier for dockworkers to identify an individual shipment, making it less likely for the shipment to be put in the wrong place.

INDIAN SCENARIOAccording to Kathuria, LTL has been in existence since a long time in India and has seen double-digit growth over the years. Customers have benefited from LTL, and with the Indian economy expanding as well as markets growing in the hinterlands, companies are moving to an ‘on-demand’ scenario, which means faster replenishments and lower inventories. He further says, “LTL and FTL cater to specific needs of customers and have been an established practice in the market for many years. Till now, customers have been exercising this choice depending on the nature of the requirement. While FTL is a good option for non-urgent and bulk movement, eg steel, cement, bulk chemicals, etc., the market for LTL is growing. All these further fuel the growth of LTL services in India.”

Sridhar elaborates that LTL services are quite popular among Indian SMEs. Moreover, it will become even more popular when SMEs – who account for a major share of India’s exports – increase the use of containerised services. “It now depends on the service providers to invest in the necessary systems, physical and human infrastructure that will cater to the potential demand.” He also explains that there is scope for further growth in the use of LTL services in the country.

OPTING FOR LTLMoving goods from many different customers on one truck helps save costs for companies to a great extent. It is therefore time to put this to proper use for cutting down on overall costs involved in transportation and, subsequently, in logistics. Also, with increasing technology advancements and availability of skilled workforce, the use of LTL service is bound to see a rise in the coming years.

Organisations using LTL services will have to identify good LTL service providers with the largest network and regular services to leverage on the benefits of the LTL movement. VINEET AGARWAL, EXECUTIVE DIRECTOR, TCI

The biggest internal challenges while deploying LTL services are: 1. Setting up quality physical and

systems infrastructure, which requires significant investments and process expertise

2. Recruiting and training a workforce with requisite skills

3. Absence of a pan-industry governing body that can enforce guidelines and standards.

Less than truckload, continued


The spurt in logistics management organisations is affecting the bottom line of companies. In order to have a competitive edge over others, many logistics service providers are adopting business intelligence (BI) to improve their performance and meet the needs of their growing

client base.

SMART SOLUTIONS For EFFECTIVE MANAGEMENT

SMART STRATEGIES BUSINESS INTELLIGENCE IN LOGISTICS


LOGISTICS is an important activity for economic development. However, cut-throat competition as a result of the increase in the number of organisations offering logistics services has led to thin margins, thus affecting the bottom line growth of organisations.

Companies today are leaving no stone unturned to cut costs and boost efficiencies. They have incorporated automation in their operations, ranging from enterprise resource planning (ERP) to transportation management system (TMS). However, despite giving these organisations time for improvement, these systems offer less scope for perfect monitoring and control activities. This is where business intelligence (BI) comes to the rescue of these organisations by proving to be an ideal programme for exercising perfect monitoring and control. Adopting this program has transformed the way organisations sense and respond to changes in the market.

Logistics, which is a subset of a supply chain, relies heavily on transportation for achieving complete execution. In a supply chain, transportation is an important link connecting various entities. Moreover, transportation plays a significant role in managing inventory levels. Although manufacturers adopt the Total Cost of Ownership model for managing their logistics costs, transportation still plays a major role in determining the number of facilities and their corresponding inventory levels for the associated stock keeping units (SKUs). Most organisations prefer to outsource transportation due to its asset intensiveness and distinct nature of operations.

Manufacturers are dependent on third party logistics (3PL) for their transportation needs. Most 3PL have matured from being basic transportation service providers to providers of other value-added services like pickups, storage and packing.

3PL can be categorised depending on the type of services they offer. The 3PL providers are actually transportation service providers (TSPs), but have matured to provide other value-added services often covering the entire logistics need of an organisation.

Over the last few decades, the role of logistics management has undergone a paradigm shift. It is now widely recognised as an extremely important aspect of the overall business strategy. Also, various factors have increased the complexity of

logistics management, thus leading many companies to outsource their logistics activities to 3PL providers.

Today, 3PL plays a critical role in the supply chain. They are increasingly viewed as strategic partners that can play a pivotal role in optimising the supply chain, thereby providing a sustained competitive advantage. In order to effectively manage supply chains, 3PL need to constantly analyse data collected from various sources and convert it into actionable information. Here, BI tools like data warehousing and online analytical

processing (OLAP) can significantly help 3PL achieve this objective. By providing a unified view of the entire supply chain, these tools can improve the functioning of basic 3PL services like transportation management, warehousing and inventory management. 3PL can also leverage BI tools to provide their clients with information specific to their supply chain, thereby increasing their market responsiveness. BI tools can thus, help 3PL improve their internal organisational functions including human resources and financial management.

BUSINESS INTELLIGENCE: A MUST FOR 3PL BUSINESSESToday, 3PL providers are viewed as strategic partners that can optimise the supply chain, reduce the cycle time and provide unprecedented customer responsiveness. These services can be effectively provided by using information technology (IT).

More advanced 3PL providers have already embraced IT to enable better coordination of activities by providing tracing and tracking facility to clients. But this is not sufficient to ensure a sustained competitive advantage. 3PL providers have to analyse all activities in the logistics process to completely decimate inefficiency from the supply chain, eliminate bottlenecks and continuously work towards process improvement.

The fundamental purpose of BI is to deliver fact-based information to improve the efficiency of a business. The BI tools need to be built to meet business requirements, and users must be able to use them. In today’s competitive global economy, having the right information at the right time is crucial to an organisation’s ability to make strategic, tactical and operational decisions.

To better understand their business, organisations need intuitive query and reporting tools to access critical business information, which will help both advanced and consumer-level users. BI is fast gaining recognition across most industries and among organisations that want to leverage its capabilities to gain a competitive advantage.

BI can be grouped into the following categories:Business operations reporting: This is the most common form of BI and

KEY PERFORMANCE INDICATORS FOR 3PL3PL Process Key Performance Indicators

Order receipt Total order receipt time, order information accuracy, revenue per order

Vehicle load planning Planning accuracy, capacity utilisation, resource utilisation, load balancing

Vehicle routing & scheduling Route utilisation, scheduling accuracy, rate of route addition/removal, vehicle availability

Dispatch operations Vehicle loading time, on-time vehicle dispatch, order dispatch accuracy

Goods in transit Rate of update of location information, average transit time, cost of transportation per tonne

Receiving operations On-time vehicle arrival, vehicle unloading time, order receipt accuracy, percentage of damaged goods

Order delivery Total order delivery time, on-time deliveries, goods delivery error rate

RRECOGNISING THE NEED FOR AN EFFECTIVE BI SOLUTION IS JUST THE FIRST STEP. THE REAL CHALLENGE IS TO MAKE IT AN INTEGRAL PART OF THE DECISION-MAKING PROCESS.


often manifests itself in the standard weekly or monthly reports that need to be produced.Dashboard: The primary purpose of a dashboard is to convey information at a glance. Here, there is little, if any, need for drilling down on the data. Multidimensional analysis: This refers to the ‘slicing and dicing’ of data. It offers an insight into numbers at a more granular level. To acquire the necessary data, a solid data warehousing/data mart back-end and business-savvy analysts are required.Finding correlation among different factors: This entails diving deep into BI. Most IT-enabled organisations consider data as a wealth of information. Organisations are moving towards adopting BI to obtain accurate information on its various stakeholders. Thus, BI can be adopted and applied in the daily activities of organisations to make the most of the data generated by various Online Transaction Processing (OLTP) systems within an organisation.

OVERVIEW OF BI TOOLSBI provides tools that deliver information to decision makers. The information comes from relational data sources or enterprise applications (eg, ERP, customer relationship management, supply chain). BI includes the following tools:Query tools: Standard query tools allow users to view information by answering a series of predefined questions. These tools resolve the need for users to combine, analyse and export information from several sources by using a static format. The standard query tool is an excellent mechanism for segmenting the user population into groups. The groups include users who need ad hoc query capabilities, prompted query capabilities and static query capabilities.Reporting tools: Reporting tools help present information in a clear format. These tools address the need for organisations to create permanent records representing the business at any point in time. The records then can be easily disseminated to others. Because of the formal nature of the information that reporting tools represent, it is important to develop procedures to maintain and update the data presented by them.OLAP tools: OLAP tools help users who require intensive data analysis capabilities to ‘drill’ seamlessly into information. These provide users with ad

hoc access to data on an as-needed basis. These tools insulate users from the details surrounding the retrieval of information from the data warehouse.Data visualisation tools: These tools visually interpret complex relationships in multidimensional data. Graphics tools are used to illustrate data relationships. Dashboards and scorecards help organisations work on data by providing an instrument for making decisions, delivering on long-term plans, responding quickly to market changes, providing greater control over the execution of strategy and promoting accountability. Both are dynamic tools that enable organisations respond to short-term market changes and support tactical decisions.

KEY PERFORMANCE INDICATORSKey performance indicators (KPIs) are important for the implementation of BI, as KPIs defined for the various processes would enable the data to be analysed and presented to the user. BI uses KPIs to present the data in a dashboard.

Further, 3PL can use OLAP tools to generate Management Information System (MIS) reports for evaluating operations performed in an organisation. Reporting tools significantly help 3PL in making decisions for managing daily operations.

3PL can also use Data Mining tools to evaluate internal and external strategic factors, and identify business and operations behaviour patterns. Data Mining tools thus, help 3PL take strategic as well as tactical decisions.

BENEFITS OF USING BI The direct benefits of using BI include: • Reduction in turnaround time for

preparation of reports• Direct and faster access to data needed

to support decision making

• Analysis of the ebb and flow of businesses across services, regions, clients, pricing, currencies, market factors in time, etc.

The indirect benefits include improvement in: • Sales performance• Data quality • Productivity.

Various KPIs can be defined by an organisation in conjunction with its BI consultants to capitalise on BI technologies available in the market. Adopting BI in an organisation is now considered more a need than a luxury. 3PL can implement BI solutions covering either key operations or the operations covering their entire organisation. Irrespective of the acceptance level and the kind of implementation, the benefits realised should be in totality.

BI is here to stay, as the rate of adoption is increasing with organisations looking at data as one of the key assets. Data needs to be harvested in a beneficial manner to gain an edge over competitors. It must be harvested by using a proper BI solution that has a unique BI strategy. 3PL, which adopt BI solutions, would be able to analyse present behaviour or market and other related activities as well as predict future behaviour and suggest actions.

Thus, 3PL should embrace BI in its nascent stages to stay competitive. It should encourage the organisation to use high-end BI solutions to remain successful in the race for market leadership and customer satisfaction.

BI SOLUTIONS FOR EFFECTIVE FUNCTIONINGThe 3PL industry is in a state of flux. Internet, supply chain management and globalisation have made sweeping changes in the existing business models of 3PL. To compete in this market, a 3PL has to continuously improve the existing services, add new technology-based services and make its internal organisational functions more effective with the help of various BI tools.

Recognising the need for an effective BI solution is just the first step. The real challenge is to make it an integral part of the decision-making process. It is critical to set clear business objectives for the BI solution, with total support from the top management.

Courtesy: Dhiren Gala, Manager – OperationsMAIA Intelligence

Business intelligence in logistics, continued

IIN TODAY’S COMPETITIVE GLOBAL ECONOMY, HAVING THE RIGHT INFORMATION AT THE RIGHT TIME IS CRUCIAL TO AN ORGANISATION’S ABILITY TO MAKE STRATEGIC, TACTICAL AND OPERATIONAL DECISIONS.

The Euphoria Begins…The Euphoria Begins…

Volume IV: Product Sourcing GuideEquipment buying tips

Product index in the beginning Purchase manager’s dilemma

As SEARCH is all set to celebrate its 13th Anniversary this January!

Volume III: Top 500 manufacturing companies Performance Of Indian Manufacturing

Companies Indian Corporates’ Performance What It Takes To Be A Leader List Of Top 500

Engineering Companies Key Learnings

Volume II: Design & Innovation Design Next: Inspiring Transformation Importance Of Design Engineering Software Solutions: Enabling Design Innovation

Volume 1: Manufacturing Solutions for India @ 21st century 13 characteristics of a super shop fl oor Plus - 13 ways to stay globally competitive by13 leaders 13 ways to spot a trend.

SEARCH, India’s leading B2B magazine on general engineering and manufacturing, has always been at the forefront to keep readers abreast with latest technological advancements and trends. As we move into the 14th year of our iconic existence, we present to you the the four edition 13th Anniversary BlockBuster issue.

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USERS must select a warehouse management system (WMS) provider, which will offer them the necessary attributes needed at present as well as in future. In order to protect their business, ensure its growth and reduce risk, users have to select a supply chain management (SCM) software vendor, who will not only

provide all the key functionalities required by the industry but also offer them scope to help their business grow.

But how can the user cut through all the typical software marketing-eze and endless feature/function lists to make sure the right software is chosen?

Users may find it confusing to

distinguish between software vendors, as they all appear similar on the surface. Following is a set of 10 questions based on the latest WMS industry themes that can help users view each vendor and their products from the same lens and also help them determine the best fit for their requirements.

TEN QUESTIONS TO ASK AWMS VENDOR BEFORE YOU BUY

Before purchasing a major software product to help their business grow, users need to carefully scrutinise the range of warehouse management system softwares available. The trick to select the most appropriate software lies in understanding the varieties of software the market has to offer.

WAREHOUSING & DC WAREHOUSING & DC WAREHOUSE MANAGEMENT SYSTEMWAREHOUSE MANAGEMENT SYSTEM


1 WHAT LEVEL OF EXPERTISE AND EXPERIENCE DOES THE VENDOR HAVE IN THE USER’S INDUSTRY?

The user should investigate each WMS vendor’s domain expertise and experience in helping companies in the same industry as that of the user’s business. The user should ask for customer references in their industry and investigate how satisfied and referenceable their customer base is. Also, users must find out whether the vendor has developed features and functions to help customers comply with the industry’s requirements.

2DOES THE VENDOR OFFER A ZERO-MODIFICATION IMPLEMENTATION WMS?People familiar with the WMS

industry must have come across instances of businesses struggling to cope with functional difficulties, and upgrading due to sky-rocketing costs. The user should make it a point to ask the vendor if it has source code modifications in its customer base. One must speak with each vendor’s customers about the process of implementing changes to the WMS and discuss the necessary involvement and cost.

3DOES THE VENDOR OFFER USERS WMS IN AN ON-DEMAND/CLOUD DELIVERY MODEL?

Cloud computing for WMS means that vendors will host the software application and hardware infrastructure for users as an on-demand, scalable and elastic service. There is no hardware to purchase or maintain, patches and upgrades are done automatically, implementation is dramatically simplified, no capital expenditure is required and there is less risk for users. One can access the WMS via a web browser and gain the functional benefits of a new WMS without the up-front costs and IT drain. A vendor with a cloud deployment alternative offers more options to build the most effective, low-cost-of-ownership WMS to meet user’s needs.

4WHAT IS THE EXPERIENCE OF THE IMPLEMENTATION TEAM THAT THE USER WOULD BE WORKING

WITH?Lack of industry experience or a shaky

implementation methodology puts the user’s installation at risk – not to mention the threat of project scope creep. Users must verify from the vendor’s customers about their implementation experience and whether the vendor was able to complete previous projects on-time and on-budget.

5DOES WMS ALLOW USERS TO MAKE CHANGES TO BUSINESS WORKFLOWS OR DO

THEY HAVE TO GO BACK TO THE VENDOR TO IMPLEMENT THESE CHANGES? WMS packages may seem like a great value until one estimates the cost of making changes to fit the software to business processes, and to upgrade the systems regularly. Users must ask the vendor about how system modifications can be made and the real cost of upgrades.

6IS THE VENDOR INVESTING IN R&D IN SINGLE /MULTIPLE WMS PRODUCTS?

It is essential to ask the vendor how many WMS platforms are being supported and maintained, and how the vendor’s R&D dollars are invested and divided among their products. Users should ensure that the selected WMS is a primary beneficiary of company investment and is a living, breathing product with consistent development.

7DOES THE VENDOR’S WMS GO BEYOND STANDARD REPORTING TO OFFER BUSINESS

INTELLIGENCE AND ENHANCED DECISION MAKING TOOLS?Here, it is important to ask the vendor if they have tools to convert the hordes of data collected by the WMS into graphical, easy-to-interpret, actionable information. It is important to check if these dashboards include industry-specific KPIs for performance benchmarking.

8WILL THE WMS SUPPORT USER’S BUSINESS DESPITE CHANGING VOLUMES

AND REQUIREMENTS IN ORDER TO MAXIMISE THE TECHNOLOGY INVESTMENT’S LIFESPAN?It is unreasonable for a WMS vendor

to claim that their system includes all features and workflows every user’s business will need. The reality is that the requirements of the user and industry will change. Operations may grow or evolve to provide users new services. Therefore, it is essential to ask the vendor if it will provide a straightforward upgrade path to advance the WMS’ capabilities, or from a basic WMS to a more sophisticated Tier 1 WMS (if applicable) or if it will require an entirely new installation, product or platform.

9WHAT IS THE UPGRADE PATH FOR A WMS IF THE BUSINESS GROWS OR NEEDS CHANGE?

Most users do not consider the cost of upgrades in their initial purchasing decision. Often, the substantial costs of upgrades come as a surprise. Additionally, many WMS vendors have policies, which require additional payments for support if users do not upgrade the software every two to three years. It is important to ask each vendor to provide typical upgrade costs and validate these costs with users who have already performed upgrades.

10 THE AVERAGE LIFESPAN FOR A WMS IS BETWEEN 7 AND 10 YEARS.

WHAT IS THE TOTAL COST OF OWNERSHIP FOR THE USER’S WMS DURING THAT TIME?Users should ask each vendor to map out a basic total cost of ownership over the projected lifetime of the installed WMS, including license fees, initial implementation, upgrades and ‘change orders’.

Courtesy: HighJump Software

UUSERS MUST VERIFY FROM THE VENDOR’S CUSTOMERS ABOUT THEIR IMPLEMENTATION EXPERIENCE AND WHETHER THE VENDOR WAS ABLE TO COMPLETE PREVIOUS PROJECTS ON-TIME AND ON-BUDGET.


COST EFFICIENCY WAREHOUSING & DC

WHAT is the difference between a ‘godown’ and a ‘warehouse’? Literally, they mean the same, but in terms of application, a warehouse supersedes the former.

Small and medium-sized companies in their local language do not use the word ‘warehouse’; they prefer the word ‘godown’ which has been used – for years altogether – to refer to a large building to store materials. For logistics players in

India, it is a major cost burden taking into consideration the haphazard way in which it is managed.

However, multinational companies (MNCs) or large enterprises term a warehouse as not just a place for storage but an integral part of their supply chain. Generally, they equip their warehouse with the latest technologies and adopt best-in-class practices. This has helped

them achieve significant gains in their businesses and cost reduction.

Successful case studies of several large companies have underlined the importance of warehouses in one’s business. This has prompted several smaller players to rethink the concept of warehouse and look towards increasing efficiency and reducing warehousing costs. The change in mindset has resulted in:

Warehousing has become indispensable to the success of any business. In such a scenario, not just large corporations but even the smaller ones are on the lookout for methods to improve efficiency and reduce cost in their warehouse operations. Some of these methods include better space utilisation, optimising transportation and distribution performance and improving picking process. Incorporating some of these methods will constitute a highly productive warehouse and help companies achieve operational efficiency in the long term.

STORING BECOMESSTORING BECOMESREMUNERATIVE

SANDEEP PAI


Cost efficiency, continued

(1) a change in the concept of godown to warehouse

(2) searching for better methods to achieve it.

A PARADIGM SHIFT Companies constantly work on finding ways to improve their performance, and warehouse operations is one area where supply chain managers need to focus on to achieve maximum efficiency at minimum cost. For obtaining maximum benefits from the operation, several best practices can be adopted to improve productivity and overall customer satisfaction. Although best practices vary from one industry to another, and according to that the products shipped, there are numerous best practices that can be applied across most companies. The most important one among these is optimum utilisation of space in a warehouse. This will undoubtedly help companies that have tighter budgets. The other two best practices include optimising transportation & distribution performance and improving the picking process.

ENHANCING PRODUCT STORAGE SPACE A number of techniques can be used to increase product storage space in a warehouse. Curt Barry, President & Founder, F Curtis Barry & Company, mentions in his article, “Our studies show that occupancy (cost of space and utilities) is in the range of 25-35 per cent of the cost per order. The biggest obstruction in the way of optimisation of a warehouse asset is inadequate use of the available cubic space. Inefficient use of the available cube space can translate into increased costs for additional warehouse space that may not actually be needed. Typically, receiving, picking, packing and shipping use 40-50 per cent of warehouse space, with the remainder for product storage.”

Thus, it is important to use racking, mezzanines, multi-level order-picking concepts and powered conveyors to increase a facility’s utilisation. In addition, the cube use in picking slots and reserve locations must be observed to determine whether space reconfiguration can increase the amount of products stored. Moreover, a system can be set up, which could allow storing at least one week’s average unit movement in the pick slot and a hot pick area for extremely fast movers.

Apart from this, moving out excess and obsolete materials leaves space in

the warehouse for more active items. Howard James-Scott, Chief – Supply Chain Management, Gati, says, “By storing ineffective items in a public warehouse, the in and out charges associated with active products can be eliminated. Storage of inactive materials in the public warehouse allows maximising the storage density of a product and negotiating a lower rate based on the same.”

Moreover, the space required for most inbound operations often represents the most underutilised warehouse cube. This is because the material can be used such that it allows access to every unit to ensure random sample selection. In many companies, sample selection is a part-time activity for an inspector, resulting in large accumulation areas to compensate for infrequent sampling. Vendor certification programmes that eliminate in-house inspection obviate the need for space to store materials that are not available for production or sale.

While increasing the product storage, space is imperative from the cost and efficiency point of view, mitigating the greatest expenditure of effort lies in the picking process.

IMPROVING PICKING OPERATIONS For increasing picking efficiencies, the labour time to pick orders needs to be reduced, which can be achieved in a number of ways. Martin Murray, Senior Supply Chain Management Consultant, and author of several books on supply chain using enterprise resource planning (ERP) software, avers, “Companies with the most efficient warehouses have the most frequently picked items stored closest to shipping areas to minimise picking time. These companies achieve their competitive advantage by constantly reviewing their sales data to ensure that the items are stored close to the shipping area and are picked most frequently.”

In this context, warehouse layout is important for achieving greater efficiencies. Highlighting some solutions, Murray explains, “Minimising travel time between picking locations can greatly improve productivity. And to increase the efficiency, companies must develop

processes to regularly monitor picking travel times and storage locations.”

Certain warehouse operations still use hardcopy pick tickets. However, this method is considered inefficient and is prone to human errors. To combat this and maximise efficiency, world-class warehouse operations had adopted some of today’s most advanced technologies. In addition to hand-held radiofrequency (RF) readers and printers, companies are introducing pick-to-light and voice recognition technology.

According to Murray, in a pick-to-light system, an operator scans a bar-coded label attached to a box. A digital display placed in front of the pick bin informs the operator about the item and quantity that they need to pick. Companies typically use pick-to-light systems for their top 5-20 per cent selling products. They can adopt this system to gain significant efficiencies, as it is totally paperless and eliminates the

errors that may result from the use of pick tickets.

Similarly, voice picking systems inform the operator of pick instructions through a headset. The pick instructions are sent via RF from the company’s ERP or order management software. The system allows operators to perform pick operations without looking at a computer screen or dealing with paper pick tickets. A number of world-class warehouse operations have adopted voice picking to complement the pick-to-light systems for their fast moving products.

OPTIMISING TRANSPORTATION AND DISTRIBUTION PROCESSAlong with improving efficiency in the picking process, it is imperative to optimise

AACOMPANY THAT TAKES THE NECESSARY STEPS TO INVEST IN AND DEVELOP ITS WAREHOUSE AND DISTRIBUTION CENTRES’ INFRASTRUCTURES NOW WILL ACHIEVE COST-SAVINGS LATER. SUCH WAREHOUSE OPERATIONS WILL HELP A WAREHOUSE MANAGERADDRESS THE GOALS OF IMPROVING CUSTOMER SATISFACTION AND REDUCING OPERATING COSTS.


transportat ion and distribution performance. Scott believes that specialised software helps optimise transportation and distribution performance. He explains some of the proprietary technologies in this regard, which are as follows:• AutoPalletP3: Meets

rece iv ing s i te ’ s requirements while increasing picking productivity and reducing damage

• AutoLoaderT3: Loads trucks optimally to meet axle restrictions in each state in the US and Canada

• APAL – (AutoPalletP3 + AutoLoderT3 – the combination 1 + 1 = 3) Auto Scheduler: Master schedules all aspects of warehouse operation to maximise customer service while minimising total movement of products

• Auto VLB: Auto Vehicle Load Builder (or Super Truck) takes VMI and DRP requirements and builds them into optimised orders that fill trucks completely, and also meet service and inventory constraints. Also, a

companion product Auto Constrained Dock Optimisation (AutoCDO) maximises shipment size in facilities having limited storage space

• Auto SPA: Auto Ship Point Assignment is a near real-time network optimisation. It assigns orders to the best ship site after considering availability, cost, need date, product obsolescence and facility shipping capacity. For building a smart warehouse, a total

integration of automated technology to carry out day-to-day operations is required. The components of a smart warehouse may include utilisation of conveyor systems, Automatic Guided Vehicles (AGVs), Automatic Trailer Loading (ATL)

vehicles, Automatic Guided Carts (AGCs), Automated Storage and Retrieval Systems (AS/RS) and a Warehouse Management System (WMS). When used in a concerted manner, these ingredients can constitute a highly productive warehouse.

A company that takes the necessary steps to invest in and develop its warehouse and distribution centres’ infrastructures now will achieve cost-savings later. Such warehouse operations will help a warehouse manager address the goals of improving customer satisfaction and reducing operating costs.

EFFICIENT WAREHOUSINGAlthough many companies are unable to afford new technologies, a number of best practices can be adopted to improve efficiency and reduce cost. Apart from the techniques, an operational audit is required to continuously improve a company’s warehousing productivity. Companies should process the audit’s results and incorporate the necessary changes into their system. Following even some of these methods will surely lead to a change from ‘godown’ to ‘warehouse’.

WWHILE INCREASING THE PRODUCT STORAGE, SPACE IS IMPERATIVE FROM THE COST AND EFFICIENCY POINT OF VIEW, MITIGATING THE GREATEST EXPENDITURE OF EFFORT LIES IN THE PICKING PROCESS.

Engineering Expo Indore 2011INVESTMENT AHOY!

Indore, acknowledged as the commercial capital of Madhya Pradesh, is poised to become an industrial hub in the years to come. The investments attracted by Indore in the recent past make the region a strong contender for inclusion in the coveted category of commercial hubs of the country. Aiding the growth of trade and commerce in the region are trade shows like Engineering Expo that not only provide a fertile platform for business augmentation but also a breeding ground for industry.

SHIBANI GHARAT

INDORE, known for its rich historical heritage, is in the process of getting its name engraved with golden letters in the world manufacturing history. The region that is the commercial capital of Madhya Pradesh, is thriving with business opportunities than ever before. Thus, it can be said that the footprints of the royalty meet the velocity of business in the city. The city, after navigating through centuries, is positioned to become an industrial hub.

Today, Indore has grown beyond measure with a bulk of its trade coming from small, mid and large-scale manufacturing & service industries. The region has more trade & commerce to offer than other cities of similar stature in the country. Key business houses including a bevy of foreign investors have already made serious investments in concurrent projects that are ongoing in and around Indore.

The industries, a major constituent of the Indore economy, contribute a considerable amount of revenue. The city has emerged as a major investment and industrial centre.

Further, it is one of the fastest growing tier-II cities in India and is also in the process of becoming an IT hub with many IT companies flourishing in Madhya Pradesh. Indore also has a thick concentration of conventional production and manufacturing industries. Prominent among them is the tektile, which has been the backbone of the city’s industrial growth.

Pithampur near Indore is one of the largest hubs of vehicle and automobile industries in India. Eminent industrial houses have opened factories and plants in Indore. Some of the most important

among them include Kinetic Honda, Onida Saka, Pratap Steel, Prestige Group, Bajaj Tempo, Bridge Stone, Chirag, Ingots, Eicher Motors, Dhar Textiles, Larsen and Toubro, Indo German Tools, Hindustan Motors, Crompton Greaves, Pratibha Syntex, Kores India, etc.

Harish Bajaj, Director, Atlas Radios, says, “New investments have helped the region immensely, especially the SMEs. They supply machinery and raw materials locally to various companies.” Atlas Radios is engaged in the trading of electronic components, electronic meters, electrical items, home appliances, synthetic adhesives and such other items. He further explains, “Take our example – any new manufacturing unit cannot run without electricity. We supply electronic parts to these organisations and that is how we have benefited from the investments.”

INFRASTRUCTURE GROWTHIndore provides the industries with complete civic and industrial infrastructure. The industrial growth of this region has been phenomenal thanks to multinational and national companies choosing the city to set up their industries here. Time and again, these companies have reiterated

that excellent infrastructure in the city makes them choose it for investment. A comprehensive industrial-friendly environment, supported by robust infrastructure, has resulted in exceptional industrial growth of this part of MP. As the capital of the Holkar dynasty, Indore has always had an easy access to the other prominent regions in India. Today, this region has proximity to almost all the major towns in India, through a network of rail, roads and air, which is a boon for industrial growth.

India’s first greenfield SEZ set up in Indore is an achievement for the State Government. Until now, 46 industrial units have been allotted land in Indore SEZ in which investment of `1,300 crore has been finalised and 20 units have already started their operations.

Apart from Indore SEZ, Pithampur industrial park, which is MP’s first and unique industrial park developed by a public sector undertaking, assures reliable and superior quality infrastructure, estate management and supporting amenities. Around 7,500 people are engaged in this SEZ and nine units involving `650 crore are under construction. The SEZ has so far made `1,300 crore worth export

Engineering Expo-Indore has been a great experience for us. Last year, we booked machinery worth ` 2.5 lakh

during the four-day event. We had also received around100+ potential leads.

Santosh S Garav, Deputy Marketing Manager, Electronica Mechatronic

System (I)

business.Moreover, Indore SEZ, Pithampur, is notified as a multi-product SEZ.

The circuits of Pithampur-Dhar-Mhow have been selected as mega investment region as per the Delhi Mumbai Industrial Corridor.

Modal logistics hub at Pithampur, economic corridor on Indore-Pithampur airport road and water supply project & sewerage project in Pithampur have been approved. All these projects would bring about revolutionary changes to the region’s economy.

INVESTMENT-FRIENDLY POLICIES The industries in Madhya Pradesh are resource-driven at large. This is due to its natural wealth in the form of limestone, coal, soya, cotton, bauxite, iron-ore, silica etc. Because of this, other industrial sectors are also emerging. Some of these include sectors like textile, cement, steel, soya processing and optical fibires.

However, there is one exception to the resource-driven industrialisation policy. This exception is the region of Indore.

The state as a result of its incentive policies in the past has been successful in developing a strong base in the auto, auto ancillary and pharmaceutical sectors. In the last few years, the Government of Madhya Pradesh has introduced many policies to encourage the development of Indore. The MP State Industrial Policy, 2004, provides specialised packages for loss-making units. Several schemes are on offer with an aim to develop industries in Indore through a ‘cluster’ approach. The State Government has acknowledged textile, pharmaceutical, IT, auto components and food processing as the priority sectors for the city.

With the constitution of industrial clusters around Indore, its economic geography has expanded rapidly in the recent years. The major economic clusters around Indore are located in Kheda, Sanwer and Dewas along with Pithampur.

With such tremendous prospects available, a platfom was required to bring about all the major players together for mutual benefits. This demand led to the introduction of Engineering Expo.

Sudhanva Jategaonkar, Associate Vice President-B2B Publishing, Infomedia18, a Network 18 company and the organiser of Engineering Expo Indore, avers, “Engineering Expo is a platform that brings together participants from the entire manufacturing sphere. Acting as a one-stop-shop, this show immensely benefits the entire manufacturing fraternity. Indore has become a hot destination for investors owing to all the support provided by the State government. Trade in the region is booming, which in turn will help the industry. Initiatives like Engineering Expo in past have proved to be principal platforms for this thriving industry to grow beyond measures.”

PLATFORM TO SUCCESSEngineering Expo is an ideal manufacturing & engineering trade fair for displaying various products and services. It is one of the most preferred platforms to grow business, as selected by 1000+ companies that participated in the previous editions of the Expo.

Exhibitors from the past like Bajaj are reaping huge benefits from their participation at Engineering Expo. “Engineering Expo has helped us spread awareness about our company and products among the new market entrants in the region. It has also helped business growth. Business generated through last year’s Engineering Expo has contributed to 10 per cent of our annual turnover. This year, we are expecting to grow to 30 per cent,” Bajaj adds.

“Engineering Expo Indore has been a great experience for us. Last year, we booked machinery worth ` 2.5 lakh during the four-day event. We had also received around 100+ potential leads,” says Santosh S Garav, Deputy Marketing Manager, Electronica Mechatronic System (I), while reminiscing about the last year’s event. The company participated in Engineering Expo Indore last year.

Highlighting the performance of Engineering Expo in helping the development of SMEs, Jategaonkar says, “The brand Engineering Expo is a brilliant example of starting humble and achieving an enviable feat over the years. With the coming months looking promising for the manufacturing sector, we aim to provide more business development opportunities through our Expo.”

Diverse industry presence, government support and infrastructure along with Engineering Expo have formed the four pillars of growth for the Indore industry. Budding trade and commerce alongwith investor trust is make these pillars stronger.

The Engineering Expo organised by Infomedia 18 is one of the engineering indus-try’s biggest events in the country. The 2009-10 edition of Engineering Expo saw business transactions worth over Rs 150 crore. Launched in Ahmedabad in 2002, the event today boasts of a huge visitor turnout. The Expo is a preferred destination for SMEs and manufacturing & engineer-ing companies to transact, network, tie-up, and ex-change ideas for the growth of the industry.

The Engineering Expo 2010-11 is scheduled to take place in four cities, after starting off at Pune in November and proceeding to Ahmedabad, Indore & Chennai in subse-quent months.

Indore | 7-10 Jan, 2011Engineering Expo has helped us spread awareness about our company and products among the new market

entrants in the region. It has also helped business growth. Business generated through last year’s Engineering Expo has contributed to 10 per cent of our annual turnover. This year, we are expecting to grow to 30 per cent.

Harish Bajaj, Director, Atlas Radios


IT TRENDS IN LOGISTICSIT TRENDS IN LOGISTICSTECHTRACK

COGNEX Corporation recently launched its next-generation DataMan handheld industrial ID scanner – the DataMan 8000 Series. Designed for the factory floor, the rugged DataMan 8000 Series offers the industry’s most advanced code reading technology using patented IDMax technology for reading 1D and 2D codes regardless of size, quality, printing method or surface. It also offers two new innovations for an industrial handheld code reader – the modular communications (including Ethernet) and the liquid lens variable focus technology.

“The DataMan 8000 Series represents a breakthrough for industrial handheld readers. In addition to its powerful code reading capability and rugged design, the DataMan 8000 Series communicates easily

with factory networks and ERP systems for real-time traceability, and the automatic variable focus enables operators to use the system close up for very small 2D Data Matrix direct part marks and to read longer 1D barcodes” said Didier Lacroix,

Senior Vice President, International Sales & Services, Cognex.

It features Cognex superior code reading capabilities with two powerful algorithms – 1DMax™ and 2DMax™ – that provide the most advanced decoding available for reading virtually every type of code, every time, with unsurpassed read rates.

The DataMan 8000 Series also supports both RS-232/USB and Industrial Ethernet communication. The system’s unique modular communication design allows users to easily upgrade fromRS-232/USB to Industrial Ethernet with field exchangeable interface modules. This flexibility enables users to modify their initial reader installation to meet future communication requirements.

Next Generation Cognex Dataman Handheld ID Reader Launched

Cognex DataMan 8000 Series Industrial ID Scanner

INTELLEFLEX has introduced two new additions to its product family – the HMR-9090 handheld reader and the FMR-6000 fixed reader. Utilising Intelleflex XC3 Technology, the readers are based on the ISO/IEC 18000-6 and EPCglobal C1G2 RFID multi-protocol standards.

ENABLING POINT The new readers will enable wireless on-demand and product-level monitoring for perishable and pharmaceutical cold supply chains. These can endure challenging environments that include metals and liquids inside packages and containers. The readers will also enable producers, shippers, distributors and retailers to monitor product freshness and quality on-demand, on fully loaded pallets or totes.

Additionally, the readers offer visibility of up to 100 metre and are designed for temperature monitoring, asset tracking and other miscellaneous applications.

Michael Liard, RFID Research Director for ABI Research, said, “An increasing number of key industry sectors are seeking automated data capture solutions that extend beyond reading a ‘licence plate ID’ on an asset, object or item. As a result, extended-capability RFID solutions are poised to deliver value for certain applications including ‘What is it?’ and ‘Where is it?’ to ‘How is it?’ For example, temperature sensing and recording are currently in tests for fresh produce, fresh and frozen meats, and pharmaceutical and laboratory applications, to name a few.”

Intelleflex Introduces Monitoring Solution For Cold Supply Chains

COMMERCEWORX and GlobeRanger Corporation recently announced the market release of its GR-Shipping Validation Solution (GR-SVS) designed to ensure final reconciliation for retail suppliers. GR-SVS ensures that product shipments correctly match the Advance Shipping Notice (ASN).

Utilising GlobeRanger iMotion software platform, the GR-SVS solution marries and verifies, through the use of RFID enable packages, the actual ship quantity to the expected advanced shipping notice. So, when discrepancies occur between the two, GR-SVS automatically flags and stops the package shipment, allowing supplier reconciliation to occur. Also, suppliers are increasingly faced with the prospect of ensuring an accurate ship

count to the expected ASN, or face high dollar charge backs. COMMERCEWorx’s CWX*RUNWAY, a modular approach to complete RFID and EDI compliance, leverages its C3000i*ASN product offering to resolve this issue. EDI data generated in the C3000i is combined with the additional ASN related data to deliver a complete EPC data solution. CWX*RUNWAY contains not only ASN required data, but also the entire EPC data requirements. “The elimination of charge backs provides immediate ROI results for vendors. Not only will vendors avoid charge backs for ASN discrepancies, but also charge backs on carton or pallet barcode labels with increased real-time operational visibility,” said Michael Becker, Director of Marketing at GlobeRanger.

COMMERCEWorx-GlobeRanger Solve Charge Back Dilemma


OATSYSTEMS recently launched the latest version of its ATASpec2000-compliant RFID asset tracking solution for aerospace manufacturers and maintenance providers. The solution will generate a unique birth record for each part and capture part manufacturing details and ongoing maintenance history on a high-memory RFID tag, which will be attached to the part through its useful life.

Established by international industry associations representing airlines, manufacturers, suppliers and repair agencies, ATA Spec 2000 enables information exchange between key stakeholders involved in the manufacture, repair and operation of commercial and military aircraft.

This is particularly important for maintenance and repair organisations (MRO), which may not have Internet access in the field; the information is easily obtained directly from the tag without any connectivity issues. The system is specifically tailored to the airline industry’s growing needs for tracking part origin/procurement and maintenance and repair history in order to ensure part documentation accuracy and aircraft safety.

OATSystems Brings Out Aerospace Tracking Solution

IN order to ensure that its berry shipments (strawberries, blueberries, blackberries and raspberries) are transported at an optimal temperature, Driscoll’s has adopted a system utilising radio frequency identification to track the location, security status and temperature of its products as they are carried by trailer trucks, and to report that information in real time.

Driscoll’s had recently carried out a pilot deployment of the system – provided by Locus Traxx, a firm that produces sensor and monitoring technology for transportation applications – on shipments of strawberries transported from its California packaging plant (where berries are washed and packed in cartons for sale in retail stores) to a distribution center located in Florida.

The technology consists of two temperature sensors with built-in battery-powered 2.4 GHz RFID tags, one door sensor with its own similar RFID tag, and an RFID reader wired to a GPS device carried in the truck’s cab. By using the Locus Traxx system, Driscoll’s was able to view the data regarding the berries’ temperature, the transit duration, when exceptions (such as high temperatures or an open door) occurred, and how quickly trucks were unloaded at the DC.

Driscoll’s Monitors Berry Shipments In Real Time


TECHNOLOGY TRENDS MACHINE VISION SYSTEMS

KEYSTO ENHANCE

TRACEABILITY

Earlier, machine vision systems were used to measure, verify & guide during the manufacturing process. As everyday production challenges facing manufacturers increase, the need of the hour lies in learning to utilise technological advances in machine vision, thereby reaping substantial benefits through developments in product traceability.

W I T H c o n s u m e r d e m a n d s spiralling upwards and the blanket of stringent legislation and regulations covering all areas of manufacturing, the need to track a product from ‘cradle to grave’ has been of paramount importance for quite some time. This not only appeases regulators but also enthralls end-users.

A few years back, ‘coding’ and ‘traceability’ were the buzzwords. The increase in machine vision usage became inevitable to ensure that full traceability could be realised. With increasing system capabilities and cost-effectiveness, vision evolved at a considerable pace across all manufacturing sectors, and the use of 1D and 2D codes soon became commonplace and the benefits of code reading and traceability were quickly realised within the logistics industry.

CODE – THE FIRST ESSENTIAL INGREDIENTFor ensuring traceability, the first essential ingredient is a code. Typically, 1D barcodes encode only numeric characters, whereas 2D can encrypt alphanumeric characters (up to 150 alphanumeric characters are standard in a 48 cell x 48 cell, 10 mm

x 10 mm) for a printed label. Usually, 1D barcodes operate against a ‘look-up’ table or database where a unique serial number is encrypted within the code and referenced against a database. However, without access to the database, which is a common scenario in the logistics industry, the code on its own has no relevance.

In comparison, all 2D code data can be encrypted within it (unique serial number/date/destination and so on) without having to access an internal database, allowing for full traceability in the field. This flexibility is proving vital for logistics companies, which conduct significant amount of code reading and product/shipment checks ‘on the road’, where access to a database would be impossible.

WHERE DATA MATRIX IS KINGWith essential information required on Figure 1: The industry standard Data Matrix™ code

DECEMBERDECEMBER 2010 • SMART LOGISTICS • 65

a product to ensure that full traceability is achieved and with space often being a key factor, the 2D DataMatrix™ code ECC200 emerged as the industry standard (Figure 1). Significantly smaller in size than a standard barcode and the versatile nature of the Data Matrix code propelled it to the forefront of product traceability (Figure 2).

This code uniquely identifies each product or part manufactured, and a digital imprint is made directly on a part surface to ensure internal traceability on the production line and external traceability throughout the lifecycle of the product. The primary tasks of the Data Matrix code include ensuring error-proofing, part traceability, part authenticity and proper supply chain management.

A standard ECC200 has 24 square formats and six rectangular formats. These formats provide the user with flexibility to encode 6-3,116 numeric characters or 2,000 alphanumeric characters in a single code. However, a more typical figure for everyday use would be about 30-40 alphanumeric characters in a single code.

Information stored on a Data Matrix code can include date, lot & batch numbers, manufacturer details, serial numbers and specific product data such as destination. The Data Matrix code is already in use across a wide variety of products, from automobile parts and circuit boards, to gas bills and medicine bottles (Figure 3).

MARKING OPTIONSThe primary methods used to produce Data Matrix codes for direct part mark identification include dot peening, laser marking, electrochemical etching and inkjet printing. Dot peening: This is achieved by pneumatically or electromechanically striking a carbide- or diamond-tipped stylus against the surface of the material

being marked. It is widely used in the automotive and aerospace industries due to the demanding lifecycle requirements (Figure 4).Laser marking: In this method, heat is applied to the surface of a part, causing it to melt, vapourise or change in some way to produce a mark (Figure 5). The resulting quality depends on the interaction of the laser with the material it marks. A laser can produce both round and square modules and offers high speed, consistency and a high level of precision. Laser marking is widely used in the semiconductor, electronics and medical device industries.Electrochemical etching: In this process, the mark is produced as a result of oxidation of metal from the surface being marked through a stencil impression. This method is recommended for curved surfaces and stress-sensitive parts, and is often used to mark medical devices.Inkjet printers: These can precisely propel ink drops to the part surface, after which the fluid that makes up the ink dot evaporates. This leaves a coloured dye on

the surface of the part, creating a pattern of modules that form the mark. Inkjet marking provides fast marking of moving parts and offers a good contrast.

Factors influencing the marking process decision include part life expectancy, material composition, environmental wear & tear and production volume. Other considerations include surface texture, the amount of data to be encoded on each part, as well as the available space and location of the mark on the part.

CODE READING – THE SECOND ESSENTIAL INGREDIENTAfter the code is marked on the product, it is of little use unless it can be read accurately. Here, machine vision takes control and ensures that full product traceability is achieved.

Conventionally, machine vision systems were used in manufacturing to measure, gauge, verify, inspect & guide, and were often installed at a single point in the production process to carry out a task. With increased customer demand for product traceability and heightened regulations in place, the range of vision systems designed specifically for the identification (ID) market has increased dramatically.

Machine vision systems are used to verify Data Matrix codes and perform the same with unwavering accuracy and

Figure 2: The traditional barcode and Data Matrix code

Figure 3: The Data Matrix code is widely used on medicine bottles

Figure 4: The dot peening application method

Figure 5: A Data Matrix code is applied using laser marking

Table 1: Data Matrix ECC200 square formats

Symbol size* Enclosed

Row x column Numbers Characters Bytes

10x10 6 3 1

12x12 10 6 3

14x14 16 10 6

16x16 24 16 10

18x18 36 25 16

20x20 44 31 20

22x22 60 43 28

24x24 72 52 34

26x26 88 64 42

32x32 124 91 60

36x36 172 127 84

40x40 228 169 112

44x44 288 214 142

48x48 348 259 172

*Symbol sizes cab be as large as 144x144


reliability, as a result of advanced technology. Further, the current vision systems are capable of handling the most challenging high-speed production lines.

I n a t y p i c a l manufacturing application, as the marked part passes before a vision sensor, the sensor captures an image of the Data Matrix code and then processes it by using specialised image preprocessing and identification algorithms. With this technology, the code reading performance is unaffected by low contrast or poorly formed codes, which can result from marking issues or general wear and tear of the product. The Data Matrix code can still be read by an advanced ID reader despite variations in marking quality, part rotation or lighting constraints (Figure 6).

In addition to reading data stored in the code, the sensors can provide production process feedback on the quality of specific markings to ensure that products are marked with the highest quality of 2D codes. Perfecting the quality of codes to eliminate any waste will lead to improved overall production efficiency and reduced operating costs.

CODE READER OPTIONSMost machine vision systems are integrated into the production line in the form of fixed-mount sensors, which are used to identify parts that are handled and moved automatically by a conveyor, indexer or robot. In operation, such a reader is mounted in a fixed position

where the mark can be repeatedly placed before the reader in a continuous or

indexed motion. They can often be configured with an integrated or external light source, as required by the application.

However, to allow maximum flexibi l ity , advanced ID code readers are also available as hand-held devices (Figure 7). These are preferred in environments where part handling is not automated or parts vary greatly in size. This method is ideal for use in the logistics sector where a product often needs to be checked in several locations before it reaches its destination.

Although both 1D and 2D readers are used in the logistics sector, the emerging majority of readers used are 2D area-based imagers. The major reason is that 2D readers are future proofed, as they can read both 1D and 2D codes, whereas 1D laser scanners can only read 1D barcodes. Further, 1D laser scanners (preferred method for barcode

scanning) need 80 per cent contrast between the foreground and background. In comparison, 2D code readers can read at 20 per cent contrast levels (sometimes even lower), and also remain unaffected by code rotation. All these are important factors to consider when investing in a code reading technology.

LOGISTICS CAPTURES THE ESSENCE OF TRACEABILITYThe two key benefits to be realised by traceability in the logistics industry are that more data can be stored in smaller areas and greater tolerance level to damage within the codes can be achieved. Traceability using a 2D code allows logistics companies to transport goods safely, with the knowledge that each item can be tracked quickly and efficiently at every stage.

With the impressive volume of data that can be carried within the 2D code, data formatting functions can be extensively utilised, along with encryption of record separators and industry standard formatting characters, to allow plug and play of the data within 2D codes, in SAP and various ERP back-end systems. Data can be stripped out and sub-strings easily formatted directly into back-end databases without the need to connect to a database to ‘look up’ the required information to input.

TYPICAL APPLICATIONS IN LOGISTICS• 1D/2D/Optical Character Verification

(OCV) to determine where a product is at any time

• Correct label on product• Correct packaging on product • Packaging not defective (such as all

flaps being closed)• Correct date/lot code on product, plus

quality of date and lot code• Date/lot code or expiry date

corresponds to 1D/2D codes

MAKING A MARK ON THE FUTUREAs the everyday production challenges facing manufacturers increase, many are learning to utilise technological advances in machine vision and, in turn, are reaping substantial benefits that product traceability offers.

Courtesy: Didier Lacroix, Senior Vice President, International Sales & Services, COGNEX CORPORATION

Machine vision systems, continued

Figure 6: The Data Matrix code can be read by an advance ID reader

Figure 7: An advanced handheld reader ideal for larger products

Table 2: Data Matrix ECC200 rectangular formats

Symbol size Enclosed

Row x column Numbers Characters Bytes

8x18 10 6 3

8x32 20 13 8

12x26 32 22 14

12x36 44 31 20

16x36 64 46 30


HITECH MATERIAL HANDLING SHOW EVENT PREVIEW

INDIA is moving steadily on a smooth growth trajectory. This has shifted the focus from cost-cutting to expanding capacities in the market which directly results into more factories and warehouses.

In this era, material handling is an inevitable phenomenon for any manufacturing unit. Material handling equipment (MHE) may not directly contribute towards production of goods but they bring about efficiency in handling, transport and storage of goods. In fact, the MHE industry just about harmonises the entire process in a manufacturing set up by ensuring smooth and efficient distribution of goods. This makes these equipment one of the most vital ingredients of a manufacturing unit. “Any manufacturing unit, in any sector, requires equipment to handle materials in its factory. Different verticals need different solutions to cater to their MHE needs. Chemical industry, pharmaceutical, construction, electronics, energy, food & beverage, metalworking, metal-casting, plastics, aerospace manufacturing, automotive industries – all are dependent on the MHE industry,” avers Tushar Mehendale, MD, ElectroMech.

TECHNOLOGICAL ADVANCEMENTSToday, the MHE industry offers a plethora of products to various industry verticals as per the needs of a particular industry. There have been several advancements in the industry to cater to the customised requirements of various industry verticals. There are specialised equipment available

for movement, storage, control and protection of materials, goods and products throughout the process of manufacturing, distribution, consumption and disposal.

“Material handling, with each passing day, is becoming more complex and novel. It is rapidly evolving as well. The present market offers a variety of equipment and systems that help in moving materials in and out of a warehouse. The equipment is selected based on the type of products to be moved and the volume to be handled,” asserts Sudhanva Jategaonkar, Associate Vice President – B2B Publishing, Infomedia18.

RIGHT EQUIPMENT DRIVES GROWTHA combination of appropriate and well-organised material handling is considered as key to determining the economies of operation. The correct selection would not only bring down the overall cost of operations, but also enhance the safety and comfort of operators, resulting in less fatigue and consequently more productivity.

“Recently, we have seen the need for more robust equipment with high demand on uptime and capabilities. The equipment manufacturing industry has met these expectations with technologically advanced products, marking a shift towards more versatile and capable equipment. We, for example, have launched TRX series of cranes, which are higher capacity cranes with higher reach and have versatile functions with greater mobility,” notes

Rajesh Sharma, VP & Head – Marketing, Escorts Construction Equipment (ECEL).

With the arrival of a variety of new, innovative and advanced products in the market, the problem of creating awareness among the users about the same also emerges. In order to create this awareness about innovative material handling solutions for the industry, Network18 Group is organising HiTech Material Handling Show in February 2011. The event aims to provide a conducive platform for showcasing best-in-class solutions that aid in attaining manufacturing efficiency. HiTech Material Handling Show will be held concurrently with HiTech Automation, under the umbrella show HiTech Manufacturing. Elaborating on the role of this show in creating awareness in the MHE industry, Jategaonkar avers, “There are various products that the MHE industry offers but the manufacturing industry is unaware of. Thus, there is a need to create awareness about these products. An ideal platform to achieve this is the futuristic show – HiTech Material Handling. At the show, latest manufacturing, distribution and supply chain solutions that will help the entire industry stay afloat will be showcased,” says Jategaonkar.

From forklift trucks to automated logistics systems, HiTech Material Handling will showcase innovative and cost-effective solutions in racking and shelving, storage solutions, pallets and palletising equipment, third party logistics, transport and distribution, handling system design and warehousing.

SHIBANI GHARAT

Mumbai | 17-19 Feb, 2011

ADVANCING TOWARDS SEAMLESSADVANCING TOWARDS SEAMLESSMATERIAL HANDLINGMATERIAL HANDLINGMaterial handling industry in India is growing at a steady pace along with stable manufacturing intensification. The advancements in this industry are moving in line with its growth. But with the progress, there is a need to create awareness about innovative solutions and technologies available. In this regard, HiTech Material Handling Show promises to serve as a fertile ground for the entire industry to converge and display technology, innovation and futuristic material handling solutions.


PRODUCT & ADVERTISERS’ INDEX

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COC = Cover on Cover, FIC = Front Inside Cover, BIC = Back Inside Cover, BC = Back Cover

Automotive Dealership Excellence Awards-2010 ..................................54

Barcode & RFID technologies .............................................................................63

Cold Chain & Logistics Expo-2011 ..................................................................57

Cold form C & Z purlins ................................................... Front inside cover

Containerised transportation .............................................Back inside cover

Custom clearance .......................................................................................................29

DHL import express worldwide ........................................ Cover-on-cover

Engineering Expo Exhibition ...........................................................................6, 19

Exhibitions ................................................................................................ 6, 19, 34, 35

Freight forwarding .......................................................................................................29

Heavy industrial steel buildings ....................................... Front inside cover

HiTech Manufacturing Show .......................................................................34, 35

Material handling systems suppliers ................................................................... 5

Multi-level car parks ............................................................... Front inside cover

ODC transportation ..................................................................................................29

Plastic pallets ..................................................................................................................11

Polycarbonate sheets ............................................................ Front inside cover

Pre-engineered steel buildings ......................................... Front inside cover

Prefab shelters ........................................................................... Front inside cover

Project transportation ...............................................................................................29

Residential steel houses ...................................................... Front inside cover

Roof vents ................................................................................... Front inside cover

Roofing & cladding sheets ................................................. Front inside cover

SEARCH - 13th Anniversary special issue ..................................................51

Self-adhesive tapes .....................................................................................................17

Structural floor decking sheets ....................................... Front inside cover

USS univents .............................................................................. Front inside cover

Ventilators ........................................................................................................................17

Ware housing ................................................................................................................29

Warehouses .................................................................................Back inside cover

Products Pg No Products Pg No

Our consistent advertisers

Pg No Advertiser Tel. No. E-Mail Website

54 ADEA-Automotive Delalership Excellence Awards +91-22-30034650 [email protected]

15 DB Schenker Logistics – – www.dbschenker.com

COC DHL Express (India) Pvt Ltd. +91-22-66789186 [email protected] www.dhl.com

6,19 Engineering Expo +91-9920401226 [email protected] www.engg-expo.com

63 Great Eastern Impex Pvt Ltd. +91-124-2347431 [email protected] www.geipl.com

34, 35 HiTech Manufacturing Show +91-09820373804 [email protected] –

57 Media Today Pvt Ltd. +91-11-26682045 [email protected] –

29 MFC Transport Pvt Ltd. +91-22-40341406 [email protected] www.mfctransport.com

9 Nina Concrete Systems Pvt Ltd. +91-22-67166000 [email protected] www.ninaindia.com

5 Schaefer Systems International Pvt Ltd. +91-22-67410770 [email protected] www.ssi-schaefer-asia.com

51 Search- 13th Anniversary +91-22-30245000 [email protected] –

11 Sintex Industries Ltd. +91-2764-253500 [email protected] www.sintex-plastics.com

17 Sreelakshmi Traders +91-44-24343343 [email protected] www.sreelakshmitraders.com

47 Supply Chain Leadership Council +91-9004685180 [email protected] –

FIC United Steel & Structurals Pvt. Ltd. +91-44-42321801 [email protected] www.unitedstructurals.com

BIC Vijay Logistics Pvt Ltd. +91-2135-675000 [email protected] www.vijaylogistics.com

BC VRL Logistics Ltd. +91-836-2237511 [email protected] www.vrllogistics.com

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DB Schenker Logistics

DHL Express (India) Pvt Ltd.

Engineering Expo

Great Eastern Impex Pvt Ltd.

HiTech Manufacturing Show

Media Today Pvt Ltd.

MFC Transport Pvt Ltd.

Nina Concrete Systems Pvt Ltd.

Schaefer Systems International Pvt Ltd.

Search- 13th Anniversary

Sintex Industries Ltd.

Sreelakshmi Traders

Supply Chain Leadership Council

United Steel & Structurals Pvt. Ltd.

Vijay Logistics Pvt Ltd.

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ADVERTISERS’ INQUIRY FORM

Automotive Dealership ExcellenceAwards-2010

Barcode & RFID technologies

Cold Chain & Logistics Expo-2011

Cold form C & Z purlins

Containerised transportation

Custom clearance

DHL import express worldwide

Engineering Expo Exhibition

Exhibitions

Freight forwarding

Heavy industrial steel buildings

HiTech Manufacturing Show

Material handling systems suppliers

Multi-level car parks

ODC transportation

Plastic pallets

Polycarbonate sheets

Pre-engineered steel buildings

Prefab shelters

Project transportation

Residential steel houses

Roof vents

Roofing & cladding sheets

SEARCH - 13th Anniversary special issue

Self-adhesive tapes

Structural floor decking sheets

USS univents

Ventilators

Ware housing

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SPECIAL PROJECTS - SMART LOGISTICSINFOMEDIA 18 LIMITED

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Smart Logistics - December 2010