Smart Logistics - September 2010

Vol. 01 | Issue 06 | SEPTEMBER 2010 Rs 100/-

pg. 61Introducing

SEPTEMBERSEPTEMBER 2010 2010 • SMART LOGISTICS SMART LOGISTICS • 5

RETAIL THERAPYIt works and how! The retail therapy is

a win-win reality of the modern age. While it does wonders to the economy

of a country, it has an elevating effect on the consumer class. Besides, for some die-hard retail therapy believers, it has a ‘liberating’ effect. And India is no different. Thanks to ‘aping the West’ syndrome coupled with disposable income and the growing middle class, retail is a reality, which is paying off handsomely.

While we may have just scratched the surface on the kind of opportunity and the potential that the retail sector holds for India, the mushrooming malls and thronging consumers is a sight to behold. But just like a fairy tale has demons that destroy the happiness of the fairyland, there is a catch and a trap in this retail land as wel! Inefficient supply chain is that trap and supply chain incidentally is the saviour as well!

Managing the supply chain for this ultra demanding and dynamic retail sector is a challenge and a huge opportunity in itself. It is like a complex maze, the path that you may choose as a supply chain professional might be full of dead ends and wrong turns; and worse if you look at it from a distance, it might look all the more complex and unsolvable. But attaining success in solving this complex maze is all about the supply chain best practices devised for the retail sector… it is also all about the September issue of Smart Logistics, which is about simplifying the complex supply chain maze of the retail sector.

There are many dimensions to this dynamic sector and the content spread of this edition matches the diversity. Optimising supply chain for future, one of the articles,

talks about how it forms the backbone of the retail industry, in the absence of which, safe and timely transfer of goods from the manufacturer to the consumer would be difficult. As one logistics expert puts it aptly, the success of the retail industry mainly depends on two factors: the product in the store and ensuring that the product is available for the customer. Replenishment is a key factor in a supply chain. Retailers who clearly understand this equation can offer better service levels to customers, with the right inventory at the backend. For making this happen, an efficient supply chain is needed, and for an efficient supply chain, a strong logistics system is required.

And efficiency will be incomplete without technology. RFID in retail industry is an enabling tool that helps in asset tracking for efficient operations in the new-age digital retailing. An in-depth article on how the retail sector has slowly but steadily realised the utility of this technology in improving operations, reducing costs and better management of critical assets is a must read.

Staying with the content spread, this edition would have been incomplete without the leaders in the Indian retail sector. The Future Supply Chains, supply chain arm of the country’s largest retailer Future Group has most definitely cracked this complex code. In the two-part, in-depth article, we bring to you the success strategies for you to imbibe.

Archana Tiwari-NayuduExecutive Editor

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AHMEDABAD - Shashin BhagatTel: 079-39826432

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CHENNAI - Harihara SubramaniaTel: 044-39864200

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COCHIN - Robin AndrewsTel: 0484-4054380

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COIMBATORE - Prakash NTel: 0422-3092600

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HYDERABAD - Kalyan CTel: 040-30647600

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INDORE - Ameya GokhaleTel: 0731-3074876

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JAIPUR - Durgesh GroverTel: 0141- 3007414

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BUSINESS OFFICES

EDITORIALExecutive EditorArchana Tiwari-Nayudu

Features EditorPrerna Sharma

Senior Features WriterSumedha Mahorey

Senior CorrespondentShivani Mody (Bengaluru)

Features WriterSandeep Pai, Sudhir Muddana, Purna Parmar, KTP Radhika Jinoy (Delhi)

Correspondents DeskGeetha Jayaraman (Delhi)

Copy DeskSwati Sharma

Product DeskMichael Anthony

DESIGNAssistant Art Director

Varuna Naik

Design TeamSanjay Dalvi, Uttam Rane

PRODUCTION DESKAmbika Karmarkar, Akshata Rane, Dnyaneshwar Goythale, Lovey Fernandes, Pukha Dhawan,

Varsha Nawathe, Ravikumar Potdar, Sanjay Shelar, Abhay Borkar

CORPORATEAssociate Vice President

Sudhanva Jategaonkar

Marketing & BrandingJagruti Shah, Ganesh Mahale, Prachi Mutha, Avinash Bhakre, Shibani Gharat

CIRCULATION/SUBSCRIPTIONGeneral ManagerSunder Thiyagarajan

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VIEWPOINT

6 • SMART LOGISTICS SMART LOGISTICS • SEPTEMBER 2010SEPTEMBER 2010

EXPANDING HORIZONS WITH STRONG LOGISTICSAlthough the retail sector is booming in the country, wide geographical distribution of Indian consumers and the increasing consciousness for quality, demand and product prices, are posing as major challenges for the retailers in their attempt to keep the shelves full with the right products. Maintaining a strong logistics and an effi cient inventory management can help the industry overcome these challenges and achieve customer satisfaction.

INSIGHTS & OUTLOOK: RETAIL SUPPLY CHAIN 31VOL. 01, NO. 06 SEPTEMBER 2010

Retail SCMSmart Solutions For Smart Logistics 36

ALSO IN THIS ISSUEVIEWPOINT 5NATIONAL NEWS 8PROJECT UPDATE 11TECH TRACK 12NEWS REPORT: ARSHIYA’S FTWZ 19PRICE TRENDS 20WORLD NEWS 21PRODUCT & ADVERTISERS’ INDEX 66PRODUCT & ADVERTISERS’ INQUIRY FORM 67

CONTENTS

LEADERSHIP SERIES 58Arvind Brands SCMSpinning A Success Story

WAREHOUSING & DC 62Warehousing In ChinaA Smart Move Spearheading The Growth Momentum?

SL EXCLUSIVE 26Fuel Price De-controlBoon Or Bane?

RFID In RetailNew-age Digital Retailing 38

Future Supply ChainsEnvisioning A Seamless SCM World 42Future Supply ChainsExhibiting Unmatched Leadership 47

VIEW FROM THE TOP

SMART STRATEGIES

50Collaborative Partnership7 Immutable Laws Of Collaborative Logistics

Distribution ManagementDevising Perfect Strategies For Future 54NEWS ANALYSIS

Mumbai Oil SpillCall For Action

Rail Freight In IndiaIt’s About Time To Get On The Fast Track

GAGANNavigating Logistics Industry Towards A Better Future

13

15

17

24‘Companies Need To Minimise The Requirement Of Standardisation And Focus On Common Denominator’

Capt S Salloum, Co-chairman, Global Coalition For Effi cient Logistics (GCEL)

RETAIL FRONTRUNNER


NATIO ALEWS

■ RAILWAYS TO FORM SPV FOR LOGISTICS PARKS IN GUJARAT & HARYANA

Dedicated Freight Corridor Corporation of India (DFCCIL) has planned to set up a special purpose vehicle (SPV) to construct four mega multimodal logistic parks in Gujarat and Haryana. The parks are a part of Indian Railways’ bigger plan to provide value-added services in order to increase its share of freight transport. At present, Railways handle nearly 65 per cent of freight traffic in the country but is working towards improving the same to increase their earning. For 2010-11, the Railways is looking to transport 944 m of freight against 888 m in the last fiscal.

The parks will be constructed along the proposed western dedicated freight corridor from Jawaharlal Nehru Port in Mumbai to Dadri near Delhi. According to government sources, the four parks, two each in Gujarat and Haryana, will require an investment of about `4,000 crore in a public-private partnership mode. The parks will provide mechanised inventory management and reduce expenses in the supply chain to customers. The parks will become operational by 2016-17, simultaneously with the completion of western dedicated freight corridor. DFCCIL plans to build more parks in the future as more corridors come into operation.

■ VRL LOGISTICS WINS 2 AWARDS AT CEAT INDIA ROAD TRANSPORT AWARDS 2010

VRL Logistics won two awards at the recently held Ceat India Road Transport Awards 2010. The company won the first award for environment conservation, while the other award was for operational excellence in logistics.

Vijay Sankeshwar, Chairman, VRL Logistics, said, “The journey so far has not been easy and it has been made worthwhile with all the rewards and recognitions that are coming our way which testifies that our pursuit of excellence is being noticed, not only nationally but abroad as well. The prestigious Ceat India Road Transport awards, advised and tabulated by Ernst & Young motivate us all over again to deliver excellence consistently.”

VRL Logistics has the largest fleet backed with 3 decades of trust. The driving force behind the success of VRL Logistics has been its commitment to live up to the consistent trust shown

by patrons and associates over these years. VRL provides its customers with an entire bouquet of v a l u e - a d d e d services that c o m p r i s e o f r o ad transportation, e x p r e s s

cargo movement re-distribution, courier services, passenger transportation & warehousing.

With a pan India services in 18 states, VRL Logistics has established a strong network of 1000 plus branches to cater to the ever-growing customer demands and needs. Talking on this occasion, Anand Sankeshwar, MD, VRL Logistics, said, “Over the last three decades, VRL Logistics has established itself as a frontrunner 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.”

■ SHIPPING MINISTRY TO AWARD 25 PORT PROJECTS UNDER PPP THIS FISCAL

Under the public-private partnership (PPP) scheme, the shipping ministry plans to award 25 port projects in the current financial year. “We would award 25 PPP port projects in the current fiscal. The collective value of these contracts would be approximately `20,000 crore. So far, five projects have been awarded to the developers,” avers K Mohandas, Shipping Secretary. Besides, the Ministry is also expecting investments from countries like Singapore, Dubai and other Gulf countries. Two of these projects at Paradip and Ennore near Chennai have already been awarded to Sterlite-Leighton and Eredene Capital consortium, respectively.

These projects also include creation of mega container terminal or bulk transshipment at Chennai Port, New Mangalore Port and conversion of berth for container terminal at Tuticorin port. These 25 PPP projects also include development & operation of two berths at Indira dock as dry bulk cargo terminal and a dry commercial cargo, both of which will be at Mumbai Port. According to Mohandas, these projects are expected to enhance capacity by 46 per cent at the 12 centrally regulated ports.

■ ALLCARGO PLANS TO DOUBLE EXPORT HANDLING CAPACITY TO 4000 TEUs

Allcargo Global Logistics is set to upgrade its Mundra container freight station (CFS) by doubling its export volume owing to the growing market demand. The CFS currently has the capacity of a single warehouse of 6,125 sqm with 19,125 sqm of paved yard. With the commissioning of the 2nd warehouse of 6,085 sqm, the export-handling capacity would go up to 4,000 twenty-foot equivalent units (TEUs) per month. This will increase the total handling capacity to 7,700 TEUs per month, from the current capacity of 4,100 TEUs per month, which includes export, import and empty handling capacity.

Adarsh Hegde, Executive Director, Allcargo Global Logistics, opines, “The expansion is extremely necessary, as the existing CFS is running just optimally. In the last few years, we have seen consistent growth in our customers’ overall business, which has increased the demand for more storage space, logistics solutions and value-added services. This expansion is designed to cater to specialised needs of diverse

Vijay Sankeshwar, Chairman & KN Umesh, COO, VRL Logistics, receiving the National Award for Environment Conservation fromPM Telang, MD, Tata Motors


NATIO ALEWS

clients like retail, fast moving consumer goods, automotive, pharmaceutical and frozen foods.”

The facility is built on a land measuring 28,375 sqm, with a paved yard of 23,800 sqm. The 6,085 sqm warehouse is equipped with 24-hour CCTV surveillance and has the capacity to handle 2,000 TEUs of exports and 1,600 TEUs of imports per month. Allcargo Global Logistics, Mundra, has its fleet of 12 trailers, 5 fork lifts of 3 MT capacity, 2 fork lifts of 10 MT capacity for handling 20 empties, 2 reach stackers of 45 MT capacity each and a 12-MT hydra crane. The facility is pilferage-free, with regulated entry of visitors at the gate, guarding personnel and adequate fire-fighting equipment. Regular mock drills for health and safety are also conducted.

■ MARG TO EXPAND ITS PORT INFRASTRUCTURE

Marg, the Chennai-based infrastructure company, expects port-based operations, including logistics, and EPC to contribute significantly to its growth. The company sees long-term potential in port-based logistics operations. It is now integrating transporters and tying up with warehouse operators as a value add to port operations. GRK Reddy, Chairman & MD, Marg, avers, “The operations at its Karaikal Port have stabilised and port revenue has contributed significantly to the company’s performance in the first quarter.”

Marg announced that its 1,004 acre land near Karaikal and Krishnapatnam Port, besides locations along the OMR, will help establish warehouses, industrial plots and tank farms for growing the logistics business. In the next year, the company will complete the subsequent phase of expansion at the Karaikal Port. With a capacity of 5 MT in place, Marg is now expanding the capacity to 21 MT with an investment of `1,500 crore. Three more berths remain to be added, with one berth catering to offshore supply vessels and project supply vessels operational now. “This is an emerging business opportunity. The other two berths would be in place by September 2011. The port now has two berths for coal and general cargo,” adds Reddy.

■ KARNATAKA GOVERNMENT BANS IRON ORE TRANSPORTATION

Karnataka, the second largest producer of iron ore in the country, has banned exports through 10 small ports in the state by banning ore transportation to the ports. BS Yeddyurappa, Chief Minister, Karnataka, informed that transport of iron ore to these state-owned ports has also been banned. “Lease holders will no longer be given permits to transport iron ore to these ports. The government will tighten up the administration to implement the ban,” he said. Karnataka exports about 25-30 MT of iron ore every year, and produces about 45 MT iron ore of the total mined in the country. The iron ore exports have been banned at old Mangalore, Pudubidri, Kundapur, Malpe and Karwar ports.

The decision to ban iron ore exports comes in the wake of rampant illegal mining and tax evasion in the state. Yeddyurappa said that the centre should bring out a policy on iron ore mining to eliminate illegal activities in the sector. R K Sharma, Secretary General, Federation of Indian Minerals Industries, said, “This decision will not curb illegal mining but hurt those carrying out mining through legal means. Such a ban violates the fundamental right to carry out business under Article 19 of the Constitution,” he pointed. There are about 100 mining lease holders in Karnataka of which 20-25 export iron ore.

APM TERMINALS PIPAVAV INAUGURATES PRESTIGIOUS RKI-CCI SERVICE

APM Terminals Pipavav, the corporate brand of Gujarat Pipavav Port, received vessels from RCL, Wan Hai and Hamburg Sud on their recent inaugural visits to Pipavav. All companies are part of the prestigious RKI-CCI Service run by RCL, Wan Hai, Hamburg Sud and Seacon, a consortium of companies. The RKI-CCI Service will call on APM Terminals Pipavav after calling Gateway Terminals India at Nhava Sheva en route to Colombo. The ports of call for the service mainly include Shanghai, Ningbo, Hong Kong, Singapore, Port Klang, Mumbai-Nhava Sheva, Pipavav and Colombo.

“The service substantially enhances connectivity of Gujarat and North India with Far East Asia and Central China. We are pleased to contribute to India’s growth, by expanding accessibility and reach for customers seeking business opportunities in India,” says Prakash Tulsiani, MD, APM Terminals Pipavav. APM Terminals Pipavav caters to Gujarat and the landlocked regions of North and North-West India and is connected to this hinterland through dedicated road and rail networks.

■ ENNORE PORT SIGNS PACT WITH BAY OF BENGAL GATEWAY

The Ennore Port (EPL) recently signed a concession agreement with Bay of Bengal Gateway Terminals for the construction and development of `1,407-crore container terminal at Ennore on a build, own and transfer basis.

S Velumani, Chairman and MD, EPL, and Mike Dekker, Director, Business Development, Grup Maritim, the lead consortium partner of the SPV, signed the agreement in the presence of GK Vasan, Union Shipping Minister. The concession agreement for the project is for 30 years. Dekker informs, “Construction of the terminal is likely to start in January and the terminal will commence operations in 36 months.” This is the first terminal project for the Spanish company in Asia. Giving further specifications, Velumani says, “It will be the first container terminal in India with a continuous quay length of 1 km designed to handle the largest container ship up to the size of 14,500 TEUs (twenty foot equivalent units) and can berth three mainline vessels simultaneously. The terminal will have an annual handling capacity of 1.5 million TEUs.”

SEPTEMBER 2010SEPTEMBER 2010 • SMART LOGISTICS SMART LOGISTICS • 11

PORT PROJECT UPDATE

� LEIGHTON INDIA WINS SECOND PORT PROJECT Paradip Port Trust has awarded the consortium of Sterlite Industries and Leighton Contractors India the contract to develop a multi-purpose berth to handle clean cargo. Leighton India will undertake the engineering, procurement & construction (EPC) civil works contract to construct the wharf and associated facilities, valued at approximately $40 million.

The project involves construction of a 405mX32m berth with expected capacity of 5 MT per annum. Berth construction, soil improvement and the civil works associated with the9.2 km new rail link, which forms part of the facilities, will be undertaken by Leighton India.

The Paradip Port project win comes on top of the Vizag Port expansion contract awarded to Leighton India earlier in August. Russell Waugh, MD, Leighton India, says, “This second port project win reinforces our strong market position in India, both onshore and offshore. Leighton’s ability to offer cost-effective solutions, coupled with a strong focus on international standards of excellence in safety, quality and timely delivery is the hallmark of our success. Our India business continues to grow rapidly as we build a strong client base through successful project delivery.” As per company officials, construction work for the project will commence later this year and is due for completion by the end of 2012.

� RAK BAGS VIZAG PORT PROJECTGovernment of Andhra Pradesh has awarded a project to Anrak Alluminium, a joint venture of Ras Al Khaimah (RAK) and state-based Penna Group, to construct a single berth deepwater port with a provision to construct a second berth at a port facility in Nakkapalli, Visakhapatnam. The company indicated cargo handling up to 4 MT a year from this facility.

“The location is between Kakinada port and the submarine facility coming up after Gangavaram port in Visakhapatnam. It is a captive port for Anrak’s cargo,” an official said.

The company had sought 500 acre of hinterland to facilitate construction of a mega power plant and the government had asked Anrak to take up the land issue with the AP Industrial Infrastructure Corporation. In a project undertaken earlier, RAK had failed to launch the multi-purpose ports project Vadarevu-Nizampatnam Ports Industrial Corridor (Vanpic). However, the company later formed alliance with Matrix Enport, and entered into an agreement with the state government for developing the twin ports, which was three years ago. It has also acquired 20,000 acre land in Guntur and Prakasam districts for building the industrial corridor.

� GOVERNMENT SETS STAGE FOR EXTERNAL INFRASTRUCTURE

VS Achuthanandan, Chief Minister, Kerala, recently inaugurated the work on the external infrastructure associated with the ambitious greenfield, multi-purpose port facility at Vizhinjam, 16 km south-west of Thiruvananthapuram.

V Surendran Pillai, Minister for Ports informed that a 45-m road is being laid out to the wharf at Vizhinjam. Work is also on for reinforcing the existing 30-km road from Kovalam to Kaliyikkavilai on the inter-state border using advanced technology at a cost of ` 30 crore to equip it for handling heavy-duty truck movement.

Vizhinjam International Seaport (VISL) is a special-purpose company fully owned by Government of Kerala with a mandate to attract private sector participation for the development of ports and to set up external infrastructure.

The government envisages the implementation of this project on a public-private partnership basis, wherein the construction and operation of the port would be based on a build, operate and transfer model.

Kerala has a coastline of 580 km, with 14 minor ports, three intermediate ports and one major port in Cochin. The state plans to tap the potential for development of a deep international container transshipment port at Vizhinjam due to its strategic location and proximity to the international shipping route.

With this project, a fair share of the Indian container traffic presently handled at foreign ports is expected to reach Vizhinjam.

� ADANI INKS PACT FOR RS 7,500-CR RAIL, PORT PROJECT IN INDONESIA

Adani Enterprises (AEL), through its step-down Indonesian subsidiary PT Adani Global, recently announced the signing of a binding, tripartite agreement for setting up a dedicated rail and port project with the Regional Government of Sumatra Selatan, Indonesia, and PT Bukit Asam, a Government of Indonesia coal mining company.

The project is estimated to cost $1.65 billion (about` 7,500 crore) and will be constructed within 48 months. The Government of South Sumatra, Indonesia, has undertaken to provide and facilitate all permits/approvals and arrange for land for the development of rail and port project. The investment will provide the much-needed funding to Indonesia for infrastructure development. Devang Desai, CFO, Adani Enterprises, informed that work on the project will start within the next three months.

Funding for the project – 70 per cent debt and 30 per cent equity – will be two-way. While Mundra Port and SEZ (MPSEZL) will invest in the port development, other Adani companies will put in money for the rail project.

The project envisages the ownership, construction and operation by the Adanis of a 250-km rail line capable of transporting a minimum of 35 mtpa of coal (expandable to 60 mtpa). The rail line will connect Tanjung Enim to Tanjung Carat, where the Adanis will build a port with matching capacity for evacuating the coal. PT Bukit Asam will sell 60 per cent of coal to Adani at government notified price and the balance tonnage would be a contract carriage for Bukit Asam.


IT TRENDS IN LOGISTICSIT TRENDS IN LOGISTICSTECHTRACK

A new network-based, video surveillance system was recently installed at Vizag Sea Port for monitoring all activities on a 24X7 basis, with minimal manual intervention. Axis Communications has bagged and implemented a major portion of the physical security solutions installations at Vizag Sea Port (VSPL). This will help the top management of VSPL to view and hear the happenings at important locations and obtain real-time data.

In the first phase of the installation, the internet protocol-based system with 17 cameras has been installed to monitor the cargo handling operations and related activities. “Morcorp Solutions, a Hyderabad-based system integration partner has implemented the project,” informs

Prakash Prabhu, Country Manager – India, Axis Communication.

The surveillance system will enhance monitoring & operational alertness and also serve as a tool for training new employees regarding port functioning.

The surveillance system has reduced the manual security system at the port, which included 73 security guards to 32 guards. “A major difference has been the effective role of the control and command function which has helped in raising efficiencies and reducing bottlenecks,” asserts Ragam Kishore, CEO, VSPL. He adds, “VSPL has invested nearly `50 lakh on installation of the system. Although the recurring costs on internet was high, the improved efficiencies and security provided by the system has been worth it.”

New Video Surveillance System Installed At Vizag Sea Port

FOLLOWING the recent incident involving the oil spill along the Mumbai coast, the Mumbai and JN Ports will soon be equipped with Tier-I pollution response system to combat oil spills. Commenting on the ability of the system, Jairam Ramesh, Union Minister for Environment and Forests, avers, “The system will be able to respond to oil spills up to 700 tonne”. While asserting on the methods to counter such incidents, Ramesh stresses on becoming a member of the international convention. He says, “We need to be a part of the Bunker Convention of the International Maritime Organisation, to enable India to have more funds in terms of claims. The Directorate-General of Shipping will co-ordinate in the matter.”

Oil Spill Countering Systems For Mumbai Ports

TAKE Supply Chain, a division of TAKE Solutions, recently announced upgradation of its OneSCM online supplier management platform. This platform features a multi-tier, multi-tenant, software-as-a-service architecture designed for medium to large manufacturers and distributors. It also features significant user interface enhancements for ease-of-use and navigation, buyer/supplier synchronisation, on-boarding functionality improvements to facilitate faster supplier adoption, and advanced search features. S Sridharan, MD, TAKE Solutions, says, “OneSCM benefits its users through simplified on-boarding and intuitive use. With the flexibility to apply freight and logistics cost controls and the simplicity to on-board thousands of suppliers per week, OneSCM provides a platform to engage all suppliers for a multitude of supplier management activities.”

The new version provides customers with better navigation facilities and enables them to easily engage with their

partners to streamline the order process more efficiently. OneSCM connects all trading partners, from buyers to suppliers, contract manufacturers to logistics carriers, etc to a single ecosystem that aggregates data from all systems, regardless of which system is in place, into a single, consolidated view.Enhancements in the new software Improved User Interface: Significant upgrades have been made to the user-friendly GUI to simplify user adoption and enable users to be productive on the system with virtually no training.Buyer/Supplier Synchronisation: Errors and over or under-shipments are avoided by ensuring that both buyers and sellers have visibility to same information at the same time.Supplier On-Boarding: An intuitive, step-by-step process that simplifies addition of new suppliers and quickly readies them for action.Advanced Search Features: Enhances usability and helps users to easily find what they are looking for.

Besides providing an ecosystem of customers to work with, the platform helps organisations manage supply chain operations from procurement to invoicing with sophisticated capabilities:Procure-to-Pay: Improves efficiency and profitability of supplier relationships by allowing companies to automate, monitor and control each step in the procurement process.Order-to-Cash: From receipt of the order to shipment, and invoicing to receipt of payment, OneSCM enables organisations to share critical information with their customers, regardless of the technology differences between the systems of an organisation and its customers. This is to increase transparency and accountability in the order-to-cash cycle.AP Automation: Streamlines transactions and communications within a partner network. OneSCM accommodates purchase order (PO) and non-PO invoices and enables users to customise workflow based on invoicing policies, invoice dollar value, type of invoice, etc.

Take Solutions Upgrades Its OneSCM SaaS Platform

SEPTEMBER 2010 • SMART LOGISTICS • 13

MUMBAI OIL SPILL NEWS ANALYSIS

ON August 8, 2010, the Indian shipping industry experienced one of its biggest maritime disasters when container vessels MSC Chitra and MV Khalijia-III collided near the coast of Mumbai. Soon after, all shipping activities were suspended at two of the busiest ports in India, Mumbai Port Trust and Jawaharlal Nehru Port Trust (JNPT) for more than a week. Both ports handle almost 70 per cent of the maritime trade in India. The accident has raised major concerns for the environment and aquatic life in the region due to the leakage of large amounts of oil and cargo possessing hazardous chemicals into the sea.

CAUSE OF THE HAZARD Although the exact reason for the collision is still unknown, Mehernosh Shroff, Chief Engineer, Sea Worthy Shipping Services, opines, “One of the major reasons for the

collision is the lack of qualified crew for managing the vessels. I assume that neither vessel was led by Flag of Convenience (FOC)-certified professionals. Moreover, the chief officer and master-in-charge of MSC Chitra abandoned the vessel after the collision, instead of immediately isolating the tanks and correcting trim to avoid further damage.”

Stressing on the importance of a disaster management plan, Vijay G Kalantri, Chairman, Dighi Port, says, “The coast guard was found ill-equipped to manage the current crisis due to inadequate equipment and infrastructure. This makes it even more crucial to have in place a disaster management and emergency response service to normalise the situation as soon as possible and reduce further damage to the environment. For the shipping industry, which is already

going through a lean phase, such incidents further add to the losses.”

HOW PREPARED ARE WE? The Mumbai oil spill comes as a test for India’s preparedness in handling shipping disasters. Any shipping accident has serious environmental implications, as oil and other hazardous cargo discharge into the sea. With the rising trade and demand for petroleum, tanker and general ship movement to India, particularly along the western coast, implementation of a strong oil spill response system has become all the more important.

“Capacity-building efforts at major ports are not in pace with the rising demand. An important question here is, for instance, whether the spread of oil discharged by the container ship MSC Chitra off the coast of Mumbai could

Sea transport is considered as one of the most eco-friendly, cost-effective and safe modes for movement of goods. However, the recent incidences of oil spill in the Gulf of Mexico and Mumbai have created an immediate need for stringent practices, safeguards and regulations for handling critical emergencies such as these. India needs to aggressively devise an action plan for preventing and managing such disasters in the future.

PURNA PARMAR

CALL FOR ACTION

14 • SMART LOGISTICS • SEPTEMBER 2010

have been better contained if sufficient oil booms had been deployed. Also, whether the containers loaded with pesticides that slipped into the sea could have been recovered quickly. Thus, a National Oil Spill Disaster Contingency Plan (NOS-DCP) was drawn up in 1996 to meet such challenges,” informs Kalantri.

According to Kalantri, all ports should by now possess functional spill response systems but are yet to be activated. The proceedings of the 14th NOS-DCP and Preparedness Meeting held in 2009 also highlighted the slow progress towards achieving full-response capacity, even at the basic level, at Mumbai port and JNPT. Big ports and oil handling facilities have the primary tier I capability to combat oil spills up to 700 tonne.

“Presently, only the coast guard is equipped and capable of handling such oil spills; however, we need national security guard (NSG)-type commandos trained solely in environment safety and protection and also national vessels to take the lead,” adds Shroff.

SAFETY NORMS India has ratified key environmental and shipping conventions, including the International Convention on Oil Pollution Preparedness, Response and Cooperation. The national coastline is about 7,500 km long and has, in the assessment of the coast guard, 11 major and 20 minor ports that need to be equipped to combat oil pollution. Ships sink in the Indian coastal waters every year, and in 2007 alone, about five vessels with a total of 658 tonne of oil had sunk. These instances indicate the importance of capacity building and infrastructure at the ports and coastal administrations to counter oil spills and manage hazardous cargo.

Captain S Jairam, Director, Seaarland Management Services India, believes, “We need to follow the international collision regulations explicitly and navigate safely, and follow Rule of the Road with good and alert watch keeping. Implementation of the International Maritime Dangerous Goods (IMDG) code and correct procedure & segregation can also help prevent such accidents.”

While according to Shroff, a proper vessel traffic control should be deployed to unify all ports close to Mumbai, which work with radars and use vessel-tracking software. There is also an urgent need to have more environment first oil spill

response vessels, like the Ahimsa Warships of Peace and Protection & Eco Sense, which are fully equipped with modern patented oil spill equipment like scoopers, pumps, oil spill membranes, compressors, collection tanks, filter separators, oily water separators, floaters, emergency membrane walls, towage & salvage vessels, auxiliary marine force and advisors.

“Although the coast guard is the central co-ordinating agency, it is incumbent on the states to modernise their pollution control apparatus for coastal protection. Interestingly, in Maharashtra, the Pollution Control Board recently wanted the State Environment Department to take the lead in preparing local contingency plans. Without such plans, a district-level protocol will not be available to prevent environmental damage,” Kalantri says. Further, on the decisions taken by the coast guard in such cases, he opines, “Finally, the suggestion by the coast guard to identify and list professional oil spill response organisations to serve as a national resource base must be accepted and acted upon.”

On the need for preparation for such events, Captain Jairam says, “Handling oil spills is a specialised job, which requires

use of equipment like oil booms to contain spread of oil and chemicals in the sea. It is crucial to immediately employ a delegation of expert teams to clean up the coastline to alleviate further damage to environment. We need to always be prepared for such eventualities in future and carry out regular drills with all departments for safeguarding the coastline.

LESSONS LEARNT The oil spill off Mumbai coast caused a temporary arrest of all maritime activities at Mumbai port and JNPT, resulting in staggering losses of about Rs 125 crore per day. These losses could have been avoided with timely action and proper logistics in place. “The mismanagement shows a lack of centralised command. Further, no plan was in place to minimise the effects of the disaster,” says Shroff.

The Mumbai oil spill thus highlights multiple issues that need immediate action, for instance, having a seamless system of communication between the ports and the vessels operating near these ports, oil spill response management systems, equipment to manage sea disasters and, most importantly, preparedness to handle environmental emergencies.

Points to remember while handling oil spill

• Immediately surround vessel with 15 ft oil-resistant membrane wall with floats

• Immediately place a safety oil-resistant membrane net below the vessel, spread by divers and underwater vessels (to keep containers from floating off if they fall)

• Immediately place vessels holding ropes of the ship in question at the port and starboard under the command of salvage master

• Immediately put floaters and buoys to correct list in high tide with the help of tugs and winches

• Place two cranes to provide support equipment and manpower • Immediately send divers with underwater ultrasonic testing equipment

to provide a full status report • Place 4–8 vessels with pumps and adductors with scoopers to suction

off oil into empty tankers• Place portable generators on board to restart vessels pumps and

correct list and trim • After correcting list and trim, send divers with underwater welding

equipment to weld plates • Keep safety and standby vessel close • Keep empty bunker tanker connected to hoses and drain off oil from

the damaged tanks • Keep compressors and diving teams ready at all times until the vessel

is dry docked.With inputs from Mehernosh Shroff, Chief Engineer, Sea Worthy Shipping Services

Mumbai oil spill, continued


RAIL FREIGHT IN INDIA NEWS ANALYSIS

WITH the introduction of bullet trains, the pace of transportation has reached speeds unimaginable in the last century. Oblivious to these developments, the Indian Rail freight still awaits for a silver lining.

Cargo trains are one of the most lucrative businesses of the Indian Railways, which bring in a major chunk of its revenues, and is still waiting for initiatives by the government to increase its transit speed. In the past few years, Railways’ share of goods moving across the country has reduced and is expected to further decrease from the present 36 per cent to 25 per cent. As compared to this percentage, the relative share of rail transportation in China

and the US is almost 50 per cent. Even though transportation by train is

less costly and three times fuel-efficient than road transportation, people prefer transporting goods through road and not train. A recent McKinsey study reveals that if the Railways do not regain their lost marketshare, the loss can increase

due to the sub-optimal logistics from the equivalent of $45 billion (or 4.3 per cent of gross domestic product (GDP)) to $140 billion (or more than 5 per cent of GDP) in 2020. Ashish Sehgal, Director, Global Packers & Movers, says, “Indian Railways are an important part of the Indian transport system carrying an entire

gamut of cargo. Going forward, rail freight has been and will experience a steady growth in the future.” Emphasising on the present situation, he avers, “The rapid progress in the industrial sector is creating demand for rail transport, particularly in core sectors like coal, iron & steel, ores and petroleum products. With the emergence of dedicated freight corridors across the

While the world is shifting towards high-speed metro rail and monorails, Indian

cargo rails still await an opportunity to move beyond the average speed of

25 kmph. Passenger trains in the country are gaining momentum, as a new set of

express trains is being introduced, whereas the freight trains are still toiling for a

proper footing. There is a dire need for Indian Railways to step up the efficiency of

freight trains to improve services.

GEETHA JAYARAMAN

IT’S ABOUTTIME TO GET ON THE FAST TRACK

TTHE MINISTRY OF RAILWAYS HAS ANNOUNCED A PILOT PROJECT TO RUN TRIPLE-DECKER CONTAINER TRAINS TO CARRY CARS, SCOOTERS AND MOTORCYCLES IN PREPARATION FOR THE EVENTUAL OPERATION OF THESE TRAINS ON THE WESTERN SECTION OF THE PROPOSED DEDICATED FREIGHT CORRIDOR.


nation, rail freight is set to witness tremendous growth opportunities. Still, the government should take some initiatives to reduce the transit period of these cargo trains, to help the Railways gain more business.”

SLOW SPEED OF THE RAILWAYSAccording to the McKinsey report, in effect, goods trains can manage an average speed of a maximum of 25 kmph. On the other hand, the same locomotives average more than 60 kmph when they pull passenger coaches on intercity runs. There are a number of reasons for this slow speed of goods train in India. First, as compared with the passenger trains, the trailing load of cargo train is twice – leading to the inability of locomotives to accelerate or cruise at a faster speed. Second, certain wagons such as those carrying coal or petroleum are not at all designed to run on high speed. And, finally, goods trains are almost always necessarily sidelined at wayside stations to allow the passenger trains reach the destination first.

SPEED IS THE NEED OF THE DAYIn order to improve the overall efficiency of rail freight services in India, Indian Railways should focus on increasing the speed of container trains. This will help the Railways compete more effectively with road services. Vineet Agarwal, Executive Director, Transport Corporation of India, says, “Since Indian Railways primarily focusses on improving the service levels, technological upgradation should occupy a prime slot in its future planning. Facilities like automatic signalling, doubling of tracks, installation of route-relay interlocking on all major routes is already a step in the direction towards improving the average speed of trains.”

HURDLES ON THE WAY The existing infrastructure is the biggest

hurdle in the way to development. The present rail network is not adequate compared with the burgeoning rail freight business, which leads to diminishing focus on the freight business of Railways. Also, there is a shortage of necessary equipment like wagons and rakes. “Intensive monitoring for timely delivery, increase in trailing load of trains, claim-

free movement of goods, improved services like refrigerated containers for perishable goods, etc, are some of the hurdles faced by cargo trains,” points out Sehgal.

THE RAY OF HOPEWith more focus on rail infrastructure development, cargo trains can regain their lost business. Focussed efforts should also be made to improve the condition of rakes, wagons and other components. Agarwal says, “Indian Railways has set

aside a part of allocation funds for technological upgradation and is working on the policy of introducing public-private partnership (PPP) model for creating infrastructure. Its agencies like Railway Land Development Authority (RLDA) are working in close co-ordination with the industry to lease out its surplus land for creating this infrastructure, while it is itself focussing on other major goals of providing world-class services to its clients.” Adding to this, Sehgal adds, “Private ownership of rakes would increase investment in privately owned warehouses, mechanised loading, etc. With the current routes earmarked for plying passenger trains and separate lines laid for freight traffic, the Railways can achieve improved moving dimensions,

longer loops of travel and higher axle loads, all leading to increased efficiency and profitability.”

PROMISING HAVENSWith the proposed Dedicated Freight Corridor (DFC), the future of Indian container trains appears bright. Possibilities are being explored for double-stacking the trains and some trial runs have already been carried out. “A plan is proposed to run double-stacked container traffic under electric traction on the DFC stretches. Even triple-stack container trains with special-purpose automobile-carrier containers have been proposed for the New Delhi–Pune route,” says Agarwal. The Ministry of Railways has announced a pilot project to run such triple-decker container trains to carry cars, scooters and motorcycles in preparation for the eventual operation of such trains on the western section of the proposed DFC. The triple-stack trains are expected to be hauled by diesel locomotives, as this western freight corridor is expected to be unelectrified.

With the proposed DFC, one can wish for the freight scenario in India to change for the better in the years to come.

The average speed of a goods train was 17.4 kmph in 1950-51, which, in 1989-90, increased to 22.7 kmph. In today’s fast-moving world, this speed or the rate of growth in speed is very low. In a predominantly agricultural economy like India, perishable goods account for a big chunk of the freight. Hence, a speed of at least 100 kmph is a requirement today.

ACT

Indian Railways are an important part of the Indian transport system carrying an entire gamut of cargo. The government should take some initiative to reduce the transit period of these cargo trains, to help the Railways gain more business. ASHISH SEHGAL, DIRECTOR, GLOBAL PACKERS & MOVERS

Reasons for slow speed of goods train in India• The trailing load of cargo train

is twice, leading to the inability of locomotives to accelerate or cruise at a faster speed.

• Certain wagons such as those carrying coal or petroleum are not designed to run on high speed.

• Goods trains are almost always necessarily sidelined at wayside stations to allow the passenger trains reach the destination first.

Rail freight in India, continued


INDIA has become the world’s fourth country to have a satellite-based navigation system with the launch of the final operational phase of the GAGAN satellite programme on August 10, 2010 at the hands of Minister of Civil Aviation, Praful Patel.

GAGAN, which stands as an acronym for Global Positioning System Aided Geo Augmented Navigation, has been jointly developed by the Airport Authority of India (AAI) and Indian Space Research Organisation (ISRO).

GAGAN is based on a constellation of 24 satellites positioned in six earth-centred orbital planes. The project involves

establishment of a full complement of a satellite-based augmentation system (SBAS) comprising 15 Indian reference stations, three Indian navigational land uplink stations, three Indian mission control centres, three geostationary navigational payload in C and L bands, with all the

associated software and communication links.

BACKGROUNDERGAGAN is a ` 774-crore project, which was carried out in three phases through 2008 while the first phase of GAGAN’s technical demonstration was completed in August 2007. ISRO has provided the technology and space support for the project, which has been envisaged to provide navigation system for all phases of air travel over India’s airspace and augmentation service for GPS over India, Bay of Bengal, South-East Asia, West Asia extending up to Africa. The project also

The recently launched Global Position System Aided Geo Augmented Navigation (GAGAN) is expected to benefit the logistics and transportation industry in terms of better navigation facility, fuel efficiency, shortest route, etc. Freight transportation players, especially air freight operators, can leverage from these advantages to enhance operations and provide better services in the future.

KTP RADHIKA JINOY

NAVIGATING LOGISTICS NAVIGATING LOGISTICS INDUSTRY TOWARDS A INDUSTRY TOWARDS A BETTER FUTUREBETTER FUTURE

GAGAN has been envisaged to provide navigation system for all phases of air travel over India’s airspace and augmentation service for GPS over India, Bay of Bengal, South-East Asia, West Asia extending up to Africa.

GAGAN NEWS ANALYSIS


involves the development of indigenous technology in frontier areas like safety-to-life operations. According to AAI, the programme also meets the stringent performance requirements of global aviation regulatory bodies.

THE INCEPTION POINTThe current GPS constellation cannot support requirements for all phases of air transportation; integrity in this system is also not guaranteed. All satellites are not monitored at all times, time-to-alarm is from minutes to hours and there is no indication of quality of service. Highlighting the fact, Amit Maheshwari, Founder & CEO, Softlink Logistic Systems, says, “Current GPS system needs augmentation, as it does not support requirements for all navigational needs. Accuracy is not sufficient and there is no guarantee of quality of service or availability. GAGAN, a system of land-based stations, improves the accuracy of satellite navigation system by providing reference signals. The system will enhance the satellite-based navigational system for all modes of transport (air, sea, land) by providing improved accuracy and availability.”

At present, only the US, European Union (EU) and Japan have such a system. GAGAN will be inter-operable with a wide-area augmentation system of the US, the geostationary navigation overlay service of the EU and the multi-functional satellite augmentation system of Japan.

Experts and industry mavens predict that the system would provide enhanced navigation performance for air transport, marine operations, rail and road transport, apart from surveying and mapping the country’s landscape. GAGAN also offers huge advantages for the logistics industry.

According to an AAI source, “Primarily aimed at providing a modern positioning aid for aircraft operators, GAGAN’s immediate consequence will be greater efficiency and safety for aircraft across the 110 AAI airports. It will thus provide

smooth communication with the ground control, neat landings, timely warning and fewer collisions.”

According to airport officials, GAGAN will equip airlines to chart out direct routes, as their reliance on the ground-based radar systems will be much less. Furthermore, the system will help save fuel and increase efficiency coupled with enhanced safety features for airlines. These would enable aircrafts to avail of precision approach guidance towards runways in any weather conditions. GAGAN is also likely to increase air-to-air surveillance.

BENEFITS TO LOGISTICS After GAGAN becomes fully operational, the logistics industry, especially the air freight sector can enjoy immense benefits such as efficiency and economy, direct routes, increased fuel savings as well as precision approach. Additionally, it will result in significant cost savings due to withdrawal of ground aids, reduced workload for the crew & air traffic control towers, improved capacity through reduced aircraft separation, improved safety and enhanced air-to-air surveillance. “Airlines will benefit, as they will be able to fly in a straight line, by the shortest route, while the Railways will be able to carry out better passenger and freight management,” claims an AAI source.

Maheswari adds, “Transport industry, particularly aviation industry will greatly benefit, as better navigation will enable them to save cost by taking direct routes and enhance safety by precision approach on runways. Not only the aviation sector

but also marine and surface transport will be benefited, as GAGAN promises to improve availability and reliability of the satellite-based navigational system. The logistic industry, by taking advantage of GAGAN will be able to save costs as well as provide better services to their customers.”

GAGAN will provide coverage of oceanic areas, which was not possible by terrestrial systems; improve functioning in all weather conditions as well as enhance reliability and lower delays. “GAGAN will make Indian skies safer and provide augmented information for satellite navigation to aircraft flying over Indian airspace and the routes over the high seas with higher level of accuracy, integrity and continuity in all phases of operations,” avers M K Sharma, a logistics expert.

FUTURE MANOEUVRESLogistics experts believe that this improved navigational system, if used properly, will help tackle many challenges present in freight transportation. The issues in safety, efficiency, routing, etc, can be brought down to significant levels and provide cost-efficiency with better freight management. Maheswari believes, “Filling the gap between the European and the Japanese system, GAGAN will boost India’s prestige as a knowledge-based economy.” However, GAGAN is yet to become fully functional for identifying its real benefits. Exploring the advantages of this satellite programme for multiple advantages would take the Indian logistics industry to an altogether new horizon in the future.

When manufacturers, retailers and

logistics service providers team up,

everyone wins!

GAGAN improves the accuracy of satellite navigation system by providing reference signals, thus enhancing satellite-based navigational system for all modes of transport (air, sea, land) by providing improved accuracy and availability. AMIT MAHESHWARI, FOUNDER & CEO, SOFTLINK LOGISTIC SYSTEMS

GAGAN, continued


INDIA is reaching new milestones every day, owing to factors like a consistent GDP growth, huge domestic market, increasing purchasing power parity, rising industrial output and foreign investments. However, factors such as poor infrastructure, unorganised transportation and various unorganised players providing services on a small scale, are still a matter of concern for the logistics industry. Currently, there is a direct market of $50 billion to be tapped in, if India can bring about efficiency as that of the developed economies while maintaining its consistent growth rate. In order to leverage this huge market opportunity, companies are looking for an end-to-end service provider with the capability to provide efficient logistics services.

To realise this opportunity, Arshiya International, a flagship company of the Arshiya group, launched India’s first Free Trade and Warehousing Zone (FTWZ) on August 18, 2010, in Mumbai. It is the first of the five strategically located FTWZs being built by the company. The 165-acre state-of-the-art facility will be operational over two phases, employing more than 25,000 people at full capacity and is expected to cost approximately `15,000 crore.

SIGNIFICANCE OF FTWZsFalling under the premise of the Special

Economic Zone Act, the FTWZs offer immense benefits to companies with import, export and overseas trading activities. FTWZs allow flexibility towards end distribution through duty deferment, higher inventory visibility, reduced buffer stocks and overall lower product costs. These also enable flexible and hassle-free re-export.

Ajay S Mittal, Group Chairman & MD, Arshiya International, said, “With the launch of India’s first FTWZ, Arshiya will not only help increase profitability and induce cost-savings for our customers, but will also serve as a game changer in the Indian logistics landscape. The FTWZ creates a whole new dimension in our ability to provide integration, flexibility and savings for our global & Indian customers. We are excited for the potential opportunities it will provide to make India a regional storage and value-addition hub.”

ARSHIYA’S CONTRIBUTION TO INDIAN LOGISTICSLogistics costs in India contribute to almost 14 per cent of the country’s GDP, which is high as compared to 8-9 per cent in most of the developed nations. A major contributor to these higher costs stems from the lack of infrastructure investments into the logistics space within India. The introduction of Arshiya’s FTWZ is expected to improve

efficiency and lower costs for customers. Arshiya’s FTWZ footprint will be part of a larger `7,000 crore integrated infrastructure plan that includes the development of five strategically located domestic distriparks and a 75-train pan-India rail infrastructure charter – all on an existing 10-year freight forwarding, supply chain & IT solution legacy, making Arshiya India’s first and truly integrated logistics company.

“Our ability to scale up our rail infrastructure operations to 12 rakes in just over a year of operations proves the need to integrate infrastructure solutions with logistics offerings in the rail space,” avers Mittal. Commenting on the company’s ability to continue the development processes even during the global meltdown, he says, “We were able to provide integrated offerings and scale up our business and execute our infrastructure projects even during the global economic slowdown. We are proud to develop a facility that is world-class and an archetype for any future logistics infrastructure projects in India.”

Arshiya’s FTWZ is a state-of-the-art integrated logistics infrastructure, with rail terminal connectivity, integrated container yard infrastructure, uninterrupted water & power supply (with100 per cent back-up), which will assist in making trade easier.

DAWNDAWN OF A OF A NEW ERANEW ERAWith a continued thrust on developing state-of-the-art logistics infrastructure for India to join the league of developed countries, logistics companies are constantly striving to create new benchmarks. Proving its mettle in the logistics landscape, Arshiya International has developed India’s first Free Trade and Warehousing Zone (FTWZ), which is all set to revolutionise the logistics industry in the coming years…

NEWS REPORT

20 • SMART LOGISTICS SMART LOGISTICS • SEPTEMBERSEPTEMBER 2010 2010

PRICE TRENDSThe RFI stood at 174 Points for the month of August 2010 registering an increase of 3 points over August 2009.

IRFI TREND FOR AUGUST 2010 For Metros Ex – Delhi rates registered on an average a highest increase by 5% where as Ex - Chennai on an average registered highest decrease by 2%.

AUTOMOBILESThe overall production data for April-July 2010 shows production growth of 33% over same period last year.

Passenger vehicles segment in April-July 2010 grew at 34% over same period last year. Passenger cars grew by 35%, utility vehicles grew by 24% and multi purpose vehicles grew by 44% in April-July 2010 over April-July 2009.

For the period of April - July 2010, three wheelers sales recorded a growth rate of 18%, while passenger carriers grew also by 21% and goods carriers grew at 7%.

COMMERCIAL VEHICLES:The overall sales of commercial vehicles segment registered growth at 50% in April-July 2010 as compared to the same period last year. While medium & heavy commercial vehicles grew at 74% and light commercial vehicles grew at 33% signaling an increase in capacity in the coming months.

FORECAST FOR SEPTEMBER 2010:The RFI in September 2009 over September 2008 had registered an increase by 1% and 2% increase over August 2009. The RFI stood at 172.52 for the month of September 2009 over 170.96 for the month of August 2009 registering an increase by 1.56%. The RFI for the month of September 2010 can be expected to increase marginally.

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 August 2010

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

163

172

171

TRENDS AUGUST 2010

166

174

136

TRENDS FOR SEPTEMBER 2010

137

166

172 173

2005-06 2006-07 2007-082009-10

166

2008-09


WORLDEWS

� FREIGHT RATES RISE TO TWO-MONTH HIGHFreight rates have recently surged to a two-month high, as the global scramble for grain imports combined with a resurgent demand from Chinese steelmakers. The Baltic Dry Index (BDI) of shipping costs for dry bulk commodities – like iron ore, coal, grains and cement – has risen 67 per cent in just over a month after sliding to its lowest since early 2009. Recently, it gained 3.1 per cent to 2,841 points, the highest since mid-June.

With investors wary of the uncertainty over the strength of the economic recovery, the BDI’s revival is seen as a dominant factor by those who view it as a measure of robustness of the global economy.

The BDI came in the international spotlight during the financial crisis in late 2008, when it had plunged close to record lows. Its subsequent recovery proved the success of stimulus measures taken by the government. However, analysts say that even if the global economy recovers strongly, it would be short-lived, as supply and demand influence the cost of freight.

Jim Lennon, Head, Commodities Research, Macquarie, said, “The global fleet of Capesize vessels would increase by about 20 per cent in 2010-11. In the freight market, seaborne trade cannot grow up to this rate due to a limited growth in mine supply in the main exporting countries.”

The BDI’s sharp rally this month comes after Russia imposed a ban on grain exports, forcing consumers in the Middle East and North Africa to seek supplies from further afield, thus increasing the demand for freight. The rate for a transatlantic grain-carrying Panamax vessel is up 17.5 per cent since early August at $26,800 per day.

Daniel Brebner, Analyst, Deutsche Bank, said, “Our traders are seeing significant increase in Chinese buying and shipping queues. Capesize rates have doubled in less than a month, while benchmark spot iron ore prices have risen 25 per cent since mid-July to $147.50 a tonne.”

� AIR FREIGHT FORWARDING MARKET SURGES IN FIRST HALF OF 2010

According to Transport Intelligence’s latest report, Global Freight Forwarding 2010, the international freight industry went into freefall last year with the market falling by 23 per cent. This followed a small increase of 2.4 per cent in 2008 – a marked slowdown from the double-digit growth seen in the mid-2000s.

The market contraction was caused by a combination of falling volumes and rates – the former brought about by a huge inventory overhang in Western consumer markets, and the latter by air and sea over capacity on all major lanes. Early 2009 saw shipping and airlines increasing their capacity, despite signs of slowdown, which indicates a significant widening of the ‘gap ratio’ between supply and demand in the first half of the year.

However, this dynamics reversed in the last quarter.

The drastic steps taken by air and sea carriers to address overcapacity consequently created the volatility seen in the first half of 2010. The report indicates that in the first half of this year, the air freight forwarding and ocean forwarding market grew by 38 and 13 per cent, respectively. Forwarders who six months earlier had been contending with a crisis in volumes, now faced a high-demand/low-capacity environment in which their gross margin was being undermined.

John Manners-Bell, Chief Analyst, Ti, takes a cautious look at the prospects for the next five years, “The surge in volumes seen in the first half of this year was due to a correction in supply chain inventories.” Further commenting on the developments in the next few months, he said, “We expect volumes to moderate in the next six months, followed by a period of low growth. Thus, across the period as a whole, some of the air and sea forwarding markets – most notably Europe – will not return to 2008 pre-recession levels until after 2013.”

However, not all markets have been affected so badly. “Although the first to experience the economic slowdown, Asia Pacific was also the first one to come out of it. The stimulus measures adopted by China indicated that the emphasis had shifted towards intra-regional trade. This has left the market in a strong position and will enjoy higher levels of growth as compared to Europeor North America in the coming years,” Manners-Bell explained.

� UPS TO BUILD HEALTHCARE LOGISTICS HUBS IN SINGAPORE AND CHINA

United Parcel Service Inc. (UPS), world’s largest package-delivery company, plans to open two healthcare logistics hubs in Asia to tap the rising regional demand for medical devices and drugs. The first facility will be set up in Singapore to handle Southeast Asia and will be operational this year, and the second will be set up in China and begin operations in early 2011,” said Derek Woodward, Head, UPS Asia-Pacific.

Further stressing on the growth potential in this sector, he said, “Healthcare is a growing sector, one that we will spend more time developing.”

UPS had raised its annual profit forecast in the previous month amid a jump in shipments in Asia and Europe. The company expects ‘very strong demand’ for air and ocean freight within Asia. UPS opened a $180 million logistics hub in Shenzhen, in South China in May. The company is now seeking to further expand services to the ‘high-growth’ healthcare.

“The hubs in Singapore and China may be wholly owned by UPS or operate as ventures with drug companies. UPS is still in talks to set capital spending on these facilities,” Woodward said.

� DAMCO INVESTS $4 MILLION IN VIETNAMDamco is investing more than $4 million in an integrated logistics centre just outside of Ho Chi Minh city in Vietnam.


Thai Binh Shoes Logistics is building the 26,000 sqm custom-built warehouse at Binh Duong, 25 km from the city. The logistics centre will serve both Cat Lai port and Cai Mep port and is well-connected by road transport. They also plan to link the facility to barge infrastructure as an alternative to truck transport, allowing customers to reduce overall transport costs and carbon emissions. The facility will be Customs-Trade Partnership Against Terrorism (C-TPAT) certified and offers consolidation, bonded, domestic and general warehouse services. It is scheduled to become functional by April 2011.

Tony Hotine, Chief Executive, Damco Asia Pacific, said, “Vietnam is a key market for Damco and we will continue to invest in infrastructure, technology and people to support the increasing demands from our customers here. We will actively work towards supporting the advancement of the domestic logistics industry by working with private and government sectors to improve efficiency of supply chain in Vietnam.”

� PANALPINA OPENS SINGAPORE OIL HUBPanalpina inaugurated a dedicated oil and gas logistics hub in Singapore, which is designed to strengthen the Swiss supply chain management firm’s presence in the fast growing Asian market. “We have a strong focus on the Southeast Asian markets, and this new hub will support our global upstream network and connect with other major oil and gas centres in Houston, Aberdeen and Dubai,” said Karl Weyeneth, Chief Operating Officer, Panalpina World Transport.

The complex, which will exclusively serve shippers from the oil and gas industry, has 7,000 sqm of covered warehouse, 14,000 sqm of open yard space and 1,100 sqm of office accommodation. The facility boosts Panalpina’s warehousing space in Singapore to more than 30,000 sqm.

This is the first such facility by a global freight forwarder to offer sophisticated supply chain management solutions for the oil and gas industry. Freight volume between Asia and the West is booming and intra-Asian trade is forecast to grow at a compound rate of 6.2 per cent, according to Panalpina. “The new Singapore facility is poised to leverage this growth potential,” the company officials said.

� CHINESE EXPORT SURGE SLOWSChina’s export volume in July climbed 38.1 per cent as compared to that a year earlier. Imports expanded even more slowly, indicating a decrease in the rapid economic expansion in the country. Imports posted a year-on-year increase of 22.7 per cent, down from that in June, which was 34.1 per cent.

China’s closely watched trade numbers indicate the strength of the global economic recovery. The country’s economic growth slowed from 11.9 per cent in the first quarter to 10.3 per cent in the second quarter. A weakness in China’s demand for imports could affect other economies, including producers of raw materials, who have benefited from China’s demand for commodities to fuel its development and exports.

In recent months, Chinese officials have worked to control the country’s rising real estate market. Some analysts have also said that they expect the European debt crisis to slow sales to Europe, which is China’s largest export market.

However, this has not happened so far. Chinese exports to Europe have risen 36.4 per cent in the last month and China’s trade surplus with the European Union increased 56.3 per cent. Exports to the US increased 29.4 per cent, as the Chinese trade surplus with the US increased 39.5 per cent.

� KOREAN AIR OPENS NEW CARGO TERMINAL IN UZBEKISTAN

Korean Air, confirmed in the latest IATA statistics as the world’s largest cargo carrier for the sixth successive year (at 8.225 billion freight tonne-kilometre), has opened a new cargo terminal in Uzbekistan with an aim to improve its growth in Central Asia. The airline is developing Navoi International Airport as a regional logistics hub, and has built a 150,000 sqm cargo terminal on the basis of its state-of-the-art design at its Incheon (Seoul) hub.

The facility has an initial capacity of 100,000 tonne cargo per year and includes cold storage. It can be expanded to handle 500,000 tonne cargo as required. The first scheduled freighter call is a three-times-a-week B747-400F service from Incheon to Milan via Navoi.

Korean Air is exploiting fifth-freedom rights to provide more competitive freighter service directly from China to the US and Europe, as previously, they had to fly back to Korea before going to onward destinations

The carrier has also re-launched its cold chain service, now branded Variation-Pharma 1, 2 and 3 to enable Korea customise its offering to meet specific supply chain needs of global pharmaceutical companies.

� BIMCO WARNS OF FALL IN CONTAINER RATE Baltic and International Maritime Council (BIMCO), the world’s largest independent shipping organisation, with more than 2,700 members worldwide, has warned about a slump in container rates. The warning has been sounded despite recovery of container shipping market in the first half of 2010, when the box rates had improved significantly and almost returned at the level seen in the first half of 2008.

However, according to BIMCO, the soaring rates could collapse in the face of high supply and reduced demand. The third-quarter peak season might not be strong enough to maintain the good rate levels achieved in the first two quarters, as ‘the average consumer hesitates to embark on a shopping spree at the malls’. The record high peak seasons’ surcharges that were announced for the third quarter of 2010 are having ‘a hard time trying to materialise’. The steep increase in the active fleet, due to new deliveries and reactivations of the idle fleet, has resulted in surcharges being dropped, reduced or delayed.

World news, continued


VIEW FROM THE TOP CO-CHAIRMAN, GCEL

YOUR PERSPECTIVE ON THE GLOBAL LOGISTICS INDUSTRYThe global logistics industry is fragmented due to vertical investments mistakenly attempting to maximise horizontal profits. More simplistically, logistics is all about end-to-end performance matrix. For a logistics activity to perform better, it needs to be in sync with all the processes involved in logistics; right from manufacturing till the dispatch to the end consumer. You can achieve a seamless supply chain network only if all these activities are aligned to each other.

INTEGRATING SUPPLY CHAINCompanies need to minimise the requirement of standardisation and focus on common denominator to streamline the supply chain. I think, technology is a key enabler to achieve this goal. In order for technology to be available to all the companies involved in the supply chain, it should be free of cost as not all companies can afford the high cost involved in the same. The basic reason behind this is that if one component of the supply chain is not able to access technology, it will create a gap in the supply chain and we will not be able to achieve the target of integrating the supply chain across the spectrum. It requires multiple technology companies to come together, offsetting geopolitical and monopolistic concerns, to deploy such a solution. But to make it free of cost, involvement of all industry verticals, including support from finance and insurance is required. All these industry verticals need to work in consensus on a revenue-sharing model. It would ensure that the end-user can access the solution at no cost at all.

SIGNIFICANCE OF GLSGlobal logistics system (GLS) is a world-wide patented open-source software technology platform, which provides a non-intrusive integration to in-house logistics software systems and ease of internet access to all entities involved in shipment activities. It provides seamless end-to-end tools to manage the global supply chain of cargo movement by all shipping modes, ancillary services such as finance and insurance along with a common

The global logistics system (GLS) is a world-wide patented open-source software technology platform, which provides a non-intrusive integration to in-house logistics software systems and ease of internet access to all entities involved in shipment activities,” avers Capt S Salloum, Co-chairman, Global Coalition For Efficient Logistics (GCEL) during an exclusive interaction with Prerna Sharma. Excerpts…

COMPANIES NEED TO MINIMISESTANDARDISATION AND FOCUS


global platform for multiple RFID and GPS trucking providers. The GLS represents an optimum opportunity for other technology providers to maximise their own product solution’s value to existing customers. This synergistic use of GLS will enhance their existing customers’ return on technology investment by increasing their global shelf-to-shelf logistics efficiency, as originally intended, at no additional direct cost.

NEED FOR GLSThe need for GLS can be recognised from three major factors viz, economic crisis, trade inefficiencies and the threat of cargo terrorism jeopardising the flow of commerce. Due to the decline in demand as a result of the global economic crisis, there is an urgent need to increase the buying power of developing economies, which represents 45 per cent of the world population. This would directly result into a global market expansion. The fragmentation of the existing vertical systems that are not capable of efficiently managing a horizontal process is resulting into an increase in annual landed import & export costs to the tune of around $700 billion globally.

ADDRESSING TRADE INEFFICIENCIES AND CARGO SECURITYOne example of a successful model is DHL or Federal Express that operate as one system – one carrier. These firms are able to efficiently maximise the utilisation of their warehouses with the co-ordination of the arrival and departures of their planes and trucks. However, these companies have size and destination limitations. The GLS is similar but represents one system, multiple carriers and without size & destination limitations, thereby providing global access while optimising capacity utilisation. With respect to excess landed import/export and operating costs, there are six elements that contribute to these inefficiencies: integration, e-documentation, tracking & visibility, competence, processes and cargo security. Improvements in these areas will result in global reductions in landed import/export and operations costs.

As to cargo security, it is too late to examine containers at points of entry on our country borders. We need to have shelf-to-shelf multi-layers of cargo security starting with country intelligence, the Coast Guard, customs and internal law enforcement. This requires the sharing of intelligence information, which is dynamically validated through multiple sources, providing the ability to flag suspicious shippers and shipments. The GLS provides such information from its global trading platform.

GLS TO SYNERGISE THE GLOBAL ECONOMYGLS will reduce trade cost to both, developing and developed countries, in turn expanding their market reach. It will reduce operating costs for private companies to retain/create jobs as well as reduce private robust logistics pipeline for productive and transparent trade; resulting in dynamic visibility and control over trade as well as early alerts to errors, thus bringing back confidence in the industry. It will also provide tools necessary for regional market expansion, as well as reach distant places through GLS. Companies can capitalise on developed countries’ expertise while leveraging on youthful labour markets of developing countries. Most importantly, companies can avail real-time and historic data for present and future planning at no cost.

GLS DEPLOYMENTThe deployment of GLS involves three kinds of industry players who will collectively provide comprehensive services that are required for global trade from shelf-to-shelf. These industries are technology-based, financial and insurance. Technology firms called ‘technology gateways’ will provide free GLS access to the end user, integrate their present and future customers to GLS as well as maintain and enhance the core system. The GLS will provide financial, insurance and technology point solution firms an unprecedented open platform technology and network to expand their services globally, enhancing their service quality, at

the same time minimising their business risk, which would result in a significant increase in revenues. The financial, insurance and technology point solution firms would thus share this revenue with the technology gateways representing the new millennium formula that will provide GLS access free of cost to the end user.

BENEFITS OF HUMAWEALTH PROGRAMMES TO INDIAAs India becomes a bigger force in the global economy, Indian businesses are looking at ways to gain a bigger foothold in global markets amid the global financial crisis. The key to success is in ensuring that businesses are competitive and can connect with speed and reliability with the growing market, wherever they are found around the world. GCEL’s HumaWealth Programme will give every Indian business a 21st century pipeline of commerce, assuring unprecedented ease of doing business anywhere around the world, at no cost.

The Humawealth programme solves the problem of a highly inefficient logistics industry. This industry is the heart of global commerce but is having a ‘heart attack’ due to the legacy of fragmentation and trade bottlenecks. The benefits are many for Indian companies as it can bridge the global boundaries and present an entire global ecosystem to harmonise the logistics landscape. It aims at reducing the landed import and export costs from an average of 11 per cent to 6 per cent, resulting in savings of nearly $700 billion globally per annum, $9.1 billion to India alone while reducing Indian businesses and their trading partners’ operating costs by up to 15 per cent. It provides a $6 trillion market opportunity by the year 2020 for the finance, insurance and technology companies. The programme will secure borders and flow of trade against cargo terrorism and provide real-time information on the availability of all materials needed for emergencies, allowing global logistics industry to mobilise rapidly and deliver necessary disaster supplies in the fastest and the most efficient manner.

THE REQUIREMENT OFON COMMON DENOMINATOR


SL EXCLUSIVE FUEL PRICE DE-CONTROL

SANDEEP PAI

Given the critical role of fuel in the transport logistics, the Central Government’s decision for a complete de-control of petrol prices and proposal for gradual de-control of diesel prices has created a tricky situation for the Indian logistics sector. Similar moves overseas have generated tremendous opportunities by enhancing the industry efficiency manifold. However, only actions will determine whether the decision will open new avenues or see the beginning of the transport service price control regime in India.

OIL is a major input to the supply chain, which in turn is an input to a country’s economy. This is a proven statement, especially for India, where logistics cost by value accounts for approximately 13 per cent of the gross domestic product (GDP). “Fuel is the most basic commodity in the logistics business, constituting about 50-60 per cent of the total logistics cost. Moreover, any fuel price hike and the accompanying freight hike, will thus definitely impact the freight users,” believes Vineet Agarwal, Executive Director, Transport Corporation of India.

In this backdrop, the announcement made by the Central Government on the complete de-control of petrol prices and the proposed gradual de-control of diesel prices on June 25, 2010, raises concerns among service providers and users about

price fluctuations. From the statement earlier, while it is

clear that fuel price de-control will have a remarkable impact on the logistics industry; however, it is imperative to understand whether it will actually result in fuel price rise and volatile price fluctuations in future. This is the factor that will play a major role in determining the type and extent of the impact on the logistics industry.

The whole idea of deregulation is to match the domestic oil prices with global prices in future. With global crude prices showing hardly any let-down in recent months, the price rise is bound to happen.

THE TRIGGER Analysing the impact of de-control of fuel prices on the various constituents of logistics industry – shipping, air and road,

experts believe that the current petrol price would have minimal impact on the shipping industry. “Most ships are fuelled by furnace oil, the price of which is not controlled. The prices of furnace oil vary with the market demand & supply, and hence de-control will not directly impact the shipping sector,” explains Agarwal.

In airline industry, Revati Kasture, GM & Head – CARE Research, says, “The Aviation-Turbine Fuel (ATF) prices were not regulated in the past as well, and the current de-control relates to prices of only petrol and diesel. The ATF prices will continue to remain market-determined.” However, this segment unlike shipping would not be impact-free, owing to the fact that fuel price is the major component in the distribution of the material from a shipper’s premises to consignee, and the

BOONORBANE?


airlines have also started revising the rates. Agarwal points out, “De-control would increase the frequency of price hikes by airlines for air cargo, making it difficult for the express industry to change the contractual customer rates frequently.”

Furthermore, road logistics will bear the biggest repercussions. This is because transport operators had increased the freight rates by about 6–8 per cent in July 2010 following the diesel price hike. Large fleet operators have also increased the freight rates at a rate higher than those of smaller operators and single truck owners.

DIVIDED OPINIONAlthough a one-time hike is manageable, price fluctuations are the real concerns. Industry experts have divergent views on this. On price fluctuations happening in the future due to de-control, Deepak Mahurkar, Associate Director – Oil & Gas Practice, PricewaterhouseCoopers (PWC), states, “I do not see any fluctuations as such because, typically, if there is a provision for oil companies to decide on the prices, they would keep in mind the consequences on the consumer sector.” He further adds, “The way Indian government has planned to de-control the prices, it still has its checks and balances in place to ensure that any volatility in oil prices should not affect the consumers in an unconstrained manner.”

Agarwal, however, sees high price fluctuation in the future because of this de-control. “The fuel price may go further up from time to time, as the oil marketing companies (OMCs) will have the power and liberty to fix prices. This will lead to frequent fluctuations in fuel prices and truck rentals,” he says.

LESSONS TO LEARNGiven the criticality of the situation, it is difficult to assess oil pricing mechanism in the country. However, to simplify this complexity, CARE Research analyses in detail regimes where decontrolled fuel pricing systems exist. Also, they highlight the various aspects of fuel de-control. Kasture states that according to a research, in many countries, particularly developed ones like the US, Europe and Japan, the prices of petroleum products are market-determined and change almost daily.

These prices are governed mainly by four components: (a) raw material cost (crude oil), (b) operating cost and profitability of refining, (c) marketing & distribution

expenses and (d ) t axe s . F u r t h e r m o r e , prices are affected by the local state regulations and competition. This has resulted in differential prices across countries as well as pricing disparity within the country. To illustrate this, in the US, the average price of gasoline is typically higher in West Coast than elsewhere, primarily due to relatively stringent fuel specification, higher taxes and logistical issues.

While it is difficult to quantify the impact of each component on final retail selling price, the differential fuel pricing is widely believed to be the result of different state-level taxes. For example, gasoline prices in the US are almost half of the similar grade gasoline in Europe, amid the higher taxes in Europe. CARE Research notes that Europe, despite being a net petroleum exporter, retained higher fuel taxes as a strategic measure to promote energy efficiency.

Nevertheless, consumers in these countries have shown acceptability and affordability to the market-determined pricing, as higher fuel prices have resulted in higher fuel economy and lesser driving miles. This has led to reduced fuel costs per vehicle-mile in the last four decades. For instance, total fuel cost in the US has declined from $0.16 per vehicle per mile in 1960 to about $0.10 per vehicle per

mile in 2010. Various academic studies have also suggested that a price rise of about 10 per cent in the long run would result in (a) a decline of 4-6 per cent in fuel consumption, (b) a 3-4 per cent increase in energy efficiency and (c) 1-3 per cent decrease in vehicle mileage, suggesting a decline of about 4-5 per cent in the total cost in the long term.

Only in Latin America, fuel prices are largely determined by local governments, and are typically well below global fuel prices. This is applicable particularly in countries like Ecuador, Venezuela and Mexico, where a direct subsidy mechanism exists. In contrast, countries like Chile have incorporated a pricing mechanism that indirectly introduces the subsidy element in pricing.

To counter the possible fluctuations in fuel prices, the Indian logistics industry is expected to resort to cost-cutting measures on other fronts such as supply-chain efficiencies, optimum utilisation of man-power and reduced turn-around time. REVATI KASTURE, GM & HEAD – CARE RESEARCH


Besides Latin American countries, oil subsidies are common in Asia-pacific and Middle-East regions as well, with fuel prices being subsidised in countries like India, China, Burma, Malaysia, South Korea, Iran, Egypt and Saudi Arabia. Nevertheless, many Asian countries are seen moving towards market-determined fuel pricing. For example, China has indirectly linked its domestic fuel prices in a controlled manner with global average crude prices. Similarly, Indonesia and Malaysia recently announced large hikes in fuel prices in response to surging crude prices. Australia, on the other hand, has adopted 100 per cent import parity pricing mechanism, whereby Australian refiners are supposed to price their output based on pricing trends in Asia.

Thus, most Asian countries are moving towards the market-determined fuel pricing, and India is no exception. The analysis by CARE also highlights that several countries worldwide have successfully de-controlled fuel pricing systems, which have made the logistics industry competitive. However, it is difficult to state whether the case would be same in India due to the fragmented nature of the Indian logistics sector.

ACTIONS REQUIREDNow considering that oil price fluctuations do happen in India. In such a case, with the frequent change in prices, fixing freight rates will be difficult. As the logistics companies cannot absorb the hike, they will pass it on their customers on the basis of pre-agreed formulas. Thus, higher fuel costs would have a trickle-down effect on the entire economy.

However, it is important that even

in such a situation, the logistics industry should ensure consistency in freight rates by addressing other related supply chain aspects. If the sector fails to do so, the higher transport costs would translate into increase in input costs or the cost of goods purchased for resale besides the obvious increase in the logistics cost. Heavy commercial vehicles running primarily on diesel and plying long distances cannot be substituted with other fuels, like compressed natural gas (CNG). The is the biggest challenge that the logistics industry needs to address to sustain the fluctuations that might occur.

To this, Kasture says, “To counter the same, the Indian logistics industry is expected to resort to cost-cutting measures on other fronts as well, e.g. supply-chain efficiencies, optimum utilisation of man-power and reduced turn-around time. In particular, in the wake of increasing competition in the Indian logistics space with the entry of new players and expansion plans of existing players into diverse areas of logistics, the companies would be forced to pass on the price hike to customers.”

However, local distribution and redistribution primarily done through light commercial vehicles can see a shift to relatively inexpensive CNG. Thus, increasing efficiencies in other cost items of supply chain management are inevitable for cost control.

CONSEQUENCES Repeated disproportionate hikes by transporters may force the government to push for a transport regulator who would be empowered to fix price bands for different types of transport services. A proposal for the same has already been suggested. In

line with this, National Road Transport Policy by the Thangaraj committee suggests radical changes in the transport sector, including the pricing of transport services. Promulgation of such a regulation may not be a priority for the government now, but repeated disproportionate hikes by transporters may precipitate the formation of such a regulator.

Freight rates are the outcome of running costs and operator margins, which, in turn, are determined by utilisation rate of the fleet. These dynamics are regional in nature, depending on the freight movement. Road logistics, primarily an unorganised sector and seasonal in nature, makes it impractical to determine idealistic freight rates or control the freight rates.

Further, regulating the freight rates would discourage investments in the road logistics sector, which is still in the developing phase. Even today, the freight rates rise & fall according to freight demand (based on agricultural and industrial output) and fleet utilisation rates (based on capital costs of vehicle and profitability of the logistics sector). Thus, disproportionate increase in freight rates is usually temporary in nature in this fragmented industry. Considering these factors, CARE Ratings believes that this industry should not be regulated.

Moreover, some experts feel that even if a regulator is appointed, it should take into account the difficulties faced by the transporters as well. Seconding these thoughts, Agarwal opines, “Transporters increase the rates only when they cannot absorb the hike and the regulators should take into account the problems of fleet owners. Every fluctuation in fuel price will result in a price hike by transporters to cover the cost of fuel.”

THE ROAD TO FUTUREThe fuel pricing regime in India is undergoing gradual reforms and the road transport segment must respond to them carefully. They should learn from their counterparts and take a proactive approach by adopting steps for cost-cutting in various aspects of supply chain.

Moreover, the government should take initiatives to control oil price fluctuations. This is critical for a country like India where at least 80 per cent of the sector is unorganised. Addressing these issues on time will enable the Indian logistics industry to move on the fast track.

Fuel price de-control, continued

The way Indian Government has planned to de-control the fuel prices, it still has its checks and balances in place to make sure that any volatility in oil prices does not affect the consumers in an unconstrained manner. DEEPAK MAHURKAR, ASSOCIATE DIRECTOR - OIL & GAS PRACTICE,

PRICEWATERHOUSECOOPERS (PWC)

Transporters increase the rates only when they cannot absorb the hike and thus, the transport regulators if appointed, should take into account the problems of fleet-owners as well. VINEET AGARWAL, EXECUTIVE DIRECTOR, TRANSPORT CORPORATION OF INDIA


THE Indian retail sector has undergone a phenomenal growth in the last few years. Experiencing a constant socio-economic change, India is witnessing a drastic increase in consumption and retail like never before. This retail outburst is led by many organised retail players, through their single and multi-brand stores, food & beverage chains, hypermarkets, departmental stores, etc. At this pace of growth, Indian retail is expected to become a $400 billion market in 2010-11.

Currently, organised retail in India constitutes about 4-5 per cent of the retail market; however, it is growing at 30-40 per cent per annum as against the overall retail growth of 8-10 per cent. Food and grocery – key drivers of organised retail growth in India – forms 60 per cent of the overall retail segment but only 11.5 per cent of the organised retail market. This sector is estimated to have grown by 21 per cent in 2009-10, and is further expected to see over 30 per cent growth in the current fiscal.

“The Indian retail sector is estimated at about Rs 900,000 crore, of which the organised sector accounts for a miniscule amount. This indicates a huge potential market opportunity awaiting the consumer-savvy organised retailer of today,” says Sandeep Sharma, VP–SCM & Commissary, Barista Coffee Company. Talking about the growth drivers of the booming Indian retail, he explains, “The whole concept of shopping has changed in terms of format and consumer buying behaviour, ushering in a revolution in

SUDHIR MUDDANA

Although the retail sector is booming in the country, wide geographical distribution of Indian consumers and the increasing consciousness for quality, demand and product prices, are posing as major challenges for the retailers in their attempt to keep the shelves full with the right products. Maintaining a strong logistics and an efficient inventory management can help the industry overcome these challenges and achieve customer satisfaction.

EXPANDING HORIZONSEXPANDING HORIZONSWITH

STRONG LOGISTICS

INDIAN RETAIL INDIAN RETAIL INSIGHTS & OUTLOOK INSIGHTS & OUTLOOK


Indian retail, continued

shopping in India. Modern retail has entered India, which is visible from the sprawling shopping centres, multi-storied malls and huge complexes that offer shopping, entertainment and food under one roof.”

While the last decade showed a strong promise for growth in organised retail due to increasing income levels and changing habits, it also showed that profitability

does not vary with coverage. An optimal retail supply chain will be the key to success for growth in this sector.

GROWTH FACTORSThere have been innumerable factors impacting the growth of retail in India. Some of them are:• Decreasing average age of India’s

population, which is 25 years.• The youth are expected to quadruple

their incomes in a decade.• Nearly three million Indians are

permanently changing their shopping preferences to organised retail outlets annually.

• Increasing economic status of households compared with that a few years back.

• Presence of nuclear families in urban areas.

• Increasing population of working

women in the country.• Emerging opportunities in the services

sector.In other words, the boom in the Indian

retail markets is related to the tremendous increase in the affordability of a general household. Lt. Col. Vijay Nair, GM–Supply Chain, HyperCity Retail (India), explains, “The growth in retail is the result of increasing salaries and surplus income.”

Seconding these thoughts, Amit Mukherjee, Group CIO, RPG Enterprises, & VP, SCM, Spencer’s Retail, avers, “As the country grows, cities grow, and there is more disposable income; hence, people prefer to buy more from organised retail. Thus, the overall growth of the country is fuelling the industry’s growth.”

MODERN VERSUS TRADITIONAL RETAILThere are vast differences between traditional and modern retail. Some of the reasons for this include increases in population, average income of people and choices of products & their price range. Thus, the retailers today have to manage their inventory and logistics activities on a larger scale.

In traditional retail, people used to make daily or weekly purchase due to their low income. In that scenario, the

goods that people bought in bulk generally included staples like rice, potatoes, onions, etc. The retailers then were called ‘kiranas’, which were appropriate for the economic scenario at that time. Nair says, “This was appropriate for that period, when they had a fixed buying and were not aspirational, since their income did not permit them to try out new products.”

Also, traditional retailers had the knowledge of the number and type of customers who come to them, and hence stocked products according to their needs. They would never try to be innovative, or provide customers with a range of similar products, at a price band. However, today, modern retailers provide a wide range of products with a broad price range, so that the consumer, irrespective of his economic status, can afford such a product. “Today, modern retail has widened the scope for the buyer. It gives him 10 ranges in all products, 15 different cost ranges; thus, while comparing products of different price ranges, a customer would want to try the more expensive one. Therefore, the modern retailer has changed the preferences of the customer, making them explore and become more aspirational, as everyone today wants to have better things,” explains Nair.

With the variety of products and increasing demand, retailers, especially supermarkets, provide their customers more opportunities to visit. They provide several activities under one roof. They also run a large variety of schemes, gifts, promotions, etc, to attract the customers into buying from them. Also, due to their bulk buying, they offer customers with products at a lesser price than the maximum retail price. This gives the customer a benefit of at least 10-15 per cent in the total cost.

Three main factors that differentiate modern retail from the traditional one are more products, more range and more price bands.

An efficient supply chain system is needed to make products available at the stores. This includes the entire process from picking up goods at the manufacturers’ end to delivering them at distribution centres or warehouses and, finally, from warehouses to stores, in the right condition.

CRITICAL ROLE OF LOGISTICSThe logistics industry plays a vital role in the process of making products available

For a good inventory management, the five factors—timely and accurate data, appropriate inventory control models, accurate forecasting, meaningful objectives and implementation—hold critical importance. An improvement in any of the factors is an improvement in the whole. SANDEEP SHARMA, VP–SCM & COMMISSARY, BARISTA COFFEE COMPANY

Why to have a good inventory management?• Having excessive inventory means additional expense for the retailer, as

it can lead to a shortfall in cashflow and incur excess storage costs.• Having insufficient inventory equals to loss of income in the form

of sales losses, while also undermining customer confidence in the retailer’s ability to supply the products they claim to sell.

• Having the wrong inventory in stock also means lost income in the form of lost sales, write downs and poor customer service.

Having the right inventory in stock and being able to sell it can lead to:• Increased sales and cash flow• New customers• Increased customer confidence.

Jayesh Patel, CFO and Head-Logistics, Globus Stores


on shelves at the right time. It forms the backbone of the retail industry, in the absence of which, safe and timely transfer of goods from the manufacturer to the consumer would be difficult. Any break or error in any part of the supply chain can increase the cost of the retailers, thereby increasing the total cost of the product and leading to poor customer satisfaction.

Mukherjee explains “Success of the retail industry depends on two factors: the product in the store and ensuring that the product in the store is available to the customer. Replenishment is a key factor in a supply chain. Thus, amount of products, location of store and time of storage determine the success of the industry.” On making this a success, he further says, “Retailers with a clear understanding of this equation can offer customers better service levels with the right inventory at the backend. This will avoid stretching of the working capital and maintain a balance between availability and capital. In order to achieve this, an efficient supply chain is needed and, for an efficient supply chain, a strong logistics system is required.”

According to Nair, there are often situations when stocks are not available in sufficient numbers at the right time with the retailer because it has either not been manufactured in time or not been moved from the manufacturer to the distribution points. Here, the role of logistics becomes important. Highlighting the importance of logistics, he says, “Raw materials include everything, from the availability of raw material, their transportation, production facility, power availability and, finally, the end products. And, the next step includes processing and transportation of the end products, good infrastructure, warehousing, etc. Also, any breaks in the process can result in a loss in the supply chain. Thus, efficient time management is important in the entire supply chain.” To this, he further adds, “Warehousing and transportation management play a major role in reducing time to market. In warehousing, it is important to properly stack the products, account for them and have a visibility of them, so that it is moved at the right time to the distribution centres. Similarly, the availability and type transport and one that moves in a specific timeframe are also important. Today, the requirement of transport is higher than what is available, resulting in a constant

push and pull.”Also, with regard to the supply-

demand situation in the country, when the demand is high and supply is less, the cost increases. Here, the total cost involves the cost of the product along with the supply chain cost and the retailer’s margin. Thus, more delays in the supply chain increase the cost for the end consumer.

With regard to the role of logistics industry in retail growth, Juzar Mustan, CEO, AFL Logistics, informs, “Our unique logistics landscape, with its fragmented service provider base, under-developed infrastructure, skills deficit, taxation challenges, etc, is a fertile ground for new

logistics models. Setting it right will make our models relevant the world over. The cost of logistics is variously put between 10 and 13 per cent of gross domestic product (GDP). This is largely due to inefficiencies throughout the supply chain and a saving of even 2 per cent of GDP would mean a saving of a staggering Rs 40,000 crore.”

TRANSFORMING LANDSCAPEOver the years, the logistics industry has undergone an enormous change. The need for an efficient supply chain and logistics management can be understood by the fact that modern retail stores maintain lower inventories than traditional stores. In India, the traditional kiranas stock inventories of about three weeks, while modern retail stores maintain stocks for less than two weeks. The modern-day retail logistics is thus more than just transportation and storage. An efficient retail logistics for retailers ensures competitive advantage, as its scope now includes plans and processes that allow the backend to effectively meet consumer demands.

Sharma says, “A retailer can own logistics arrangements (in-house logistics) or hire third party for logistics services (outsourcing of logistics activities). For increasing efficiency of their supply chain,

companies are now prefering logistics outsourcing. Transportation is an essential part of logistics for maintaining flow of goods between manufacturers, suppliers and retailers.”

He explains a few points that modern logistics flow should take into account:• Effective co-ordination: To ensure

perfect co-ordination within various units of a retail venture like suppliers, manufacturers and vendors.

• Perfect timings: To ensure that consumers receive the right product at the right time and at the right place.

• Continuous supply: To ensure efficient, seamless and consistent supply to

retail stores across various geographic areas.

• Continuous growth: To achieve profitable and sustainable growth of retail operations in the long term.

• Optimum inventory: To achieve optimal inventory levels and reduce product wastage.

HURDLES IN THE WAYLogistics in the retail industry brings up two aspects, one of the retailers and the other of logistic companies. Although the retail industry is developing, modern retailers still face certain challenges, right from the real estate prices, lack of personnel training, infrastructure, to the different levels of service received in different geographical locations.

Mukherjee says, “Retail is a geographically spread business for any national retailer, so obtaining the same level of service, whether from the vendor or a company that supplies the goods, and the quality of logistics service provider in each place also differ. Thus, moving on from Tier-1 to Tier-2 towns, there arise quality issues in terms of people and implementing new processes because the adoptability becomes difficult. Also, moving deeper into Tier-2 and Tier-3 towns, the quality of service deteriorates. The challenge is to ensure a consistent

Outsourcing of logistics activities to 3PL companies is set to increase. The outsourcing of retail logistics will be a core component of all logistics services provided by most 3PL players in the next 3 years. This will enable 3PL share of total logistics market to hit 5 per cent by 2014. JUZAR MUSTAN, CEO, AFL LOGISTICS


Indian retail, continued

service level in both Tier-1 and Tier-2 towns.”

Discussing the challenges faced by the retailers while connecting with the logistics services for the retail industry, Sharma explains the different issues.Hiring and training the right people: We have the highest number of educated people in the world, but only few have the expertise to control our supply chain. Our team is empowered to make decisions, e.g. delaying purchase, holding outbound trucks, expediting parts, but only a few understand the impact to the complete supply chain and the risks to our customers and their end users.Impact assessment: We deal with thousands of customer order changes per week. Each change cascades through the supply chain. Assessing cost impacts correctly to pass them on to customers and vetting the costs against customer contracts is a non-trivial task.Supply chain software: For effective management of the supply chain, lengthy programmes are not needed, though data is needed. It is difficult to create a system set up that uses a single data nomenclature for all countries, trade zones, suppliers, customers, warehouses and production facilities.Lack of global supply chain view among stakeholders: It includes creating

awareness among all stakeholders about the value of global optimisation. Typically, this is due to historic reasons. An integrated SCM system provides opportunity for global optimisation. But, the silo-based legacy SCM structures and processes had created a mindset of silo optimisation. Creating such a view among stakeholders of SCM is a key challenge.Misalignment of organisational structures:

Current organisational structures do not help capitalise on the opportunities to manage the supply chain more efficiently. These are supported by performance requirements that support silo thinking.Lack of suitable business models: Supply chain business ecosystem is more fragmented and less streamlined. Participants in the ecosystem try to maximise value within their boundaries, while ignoring the overall supply chain efficiency.

With growing population and increasing demands, the logistics industry is bound to improve over the years with respect to factors like transportation, warehousing, picking, dropping, etc. Despite the improvement, logistics companies dealing with retail still face numerous challenges. The major challenges include safety of goods during transportation and strict time management. Also, managing the damaged or unwanted merchandise, which is returned by the consumers, seems a difficult task. Therefore, a retail company should recognise the value of having an efficient reverse logistics management system so as to keep the shelves full with fresh and in-demand products. Jayesh Patel, CFO & Head-Logistics, Globus Stores, affirms, “A key area for retailers is reverse logistics. It gives the retailer revenues of 4-5 per

cent. Thus, an efficient reverse logistics adds to the income of the retailer.”

Mustan explains a few key challenges faced by the logistics companies. These are:Speed: Moving products swiftly and accurately through a network of warehouses and transport hubs has been one of the biggest hurdles faced by companies. Many factors are beyond

the control of logistics companies, e.g. bandhs, inconsistent road maintenance, unexpected delays at check nakas, etc. Document requirements imposed by the authorities like road/transportation permits also delay processing.Know-how: All logistics companies are not equipped with the required skills and training to manage the retail sector. For example, retail distribution centres need a variety of pick-up methods across a combination of racks and binning systems, that most logistics companies are not familiar with. This results in slow order picking, inaccuracy and high dependence on manpower. Also, modern retail is still a new vertical and requires expertise in managing not only physical movement but also related information flows. Cost: India is a low-cost, high-volume country. People here can accept higher costs only if they are offered quantifiable benefits that translate into a supply chain or turnover gain. A major challenge is the ability to pick the correct supply chain approaches and demonstrate conclusive cost versus benefit trade-offs.

Today, cost of real estate is another challenge faced by retailers and logistics companies. They are thus forced to set up their warehouses outside the city they cater to. This further leads to the issue of inability to hire people with required skillsets. Furthermore, there are issues of Mathadi and village Varai. Finally, there are several licences that need to be followed, e.g. labour licence, contract licence, etc. These compliances would be easy to follow if they were available at one place rather than each of them being dealt at a different office.

In order to provide a smooth retail logistics service to customers, it is important to eliminate all these roadblocks and maintain a strong logistics management. “If issues crop up, there are always solutions along with it. The success of running logistics is the way we can overcome these difficulties and find solutions,” said Nair.

ACHIEVING GOOD INVENTORY MANAGEMENTGood inventory management plays a critical role in streamlining retail supply chain. Inefficient management of inventories can result in massive losses for the retailer. Inventory management includes the inventories at the store as well as different distribution centres

Challenges faced by retailers in using logistics services:• High cost of real estate• Several issues of licence and other compliances• Less number of specialised vendors and each having their demands and

requirements• Wastage of time in octroi• Product suppliers not adhering to timings, the fill rates and the terms

of contract• Lack of proper education and training• Poor infrastructure• Power shortage.

Lt. Col. Vijay Nair, GM – Supply Chain, HyperCity Retail (India)


and warehouses that store the goods. Mukherjee said, “The most important factors are the items and their quantity that a retailer wants to store. Thus, the crucial factors in inventory management are the items, quantity of items (replenishment time) and ordering time. The retailer should be cautious about the breadth and depth of the merchandise to be stored. It is a function of the customer type that they will be catering to.”

According to Nair, the factors responsible for a good inventory management include count, recount, re-recount, re-recount and re-recount. In other words, it is essential to always keep an account of the inventory. He also mentioned five points to run a good inventory management – visibility, vendor integrity, maintenance, first in first out (FIFO) and perpetual inventory count system (PICS). PICS includes functions like damage sorting, expiry tracking and regular cleaning.

TECHNOLOGY TRENDSTechnology is the most important aspect in building retail supply chain. With the advancements in technology the world over, it is important for Indian logistics companies to stay updated with the latest equipment and software so as to enhance the quality of their services by conforming to timely delivery of products from manufacturer’s door to retail stores. Nair avers, “The first factor for good inventory management is visibility, which is dependent on technology. Everything done for inventory, i.e. receiving, picking, put away, packing and dispatch, are associated with technology. Adoption on latest technology significantly impacts inventory and increases productivity.”

According to Sharma, technology has been competent in the retail supply chain.

The emerging IT industry also plays a key role in making the systems more robust by enabling efficient data and information flow. Services have become faster and more accurate in terms of logistics transparency and inventory monitoring & forecasting. Today, due to software enhancement, technology from vendor to warehouse, logistics tracking and outlet inventory & stock, all are linked on a similar plane.

EMERGING AVENUESToday, modern retailers carry out logistics of their products in two ways – in-house and outsourced. Both methods are acceptable, but for large-scale operations, outsourcing services is considered better. Only easy-to-control operations should be performed in-house.

With the retail sector all set to grow in the years to come, the logistics industry needs to expand along with it. “Organised retail is steadily picking up. There is increased growth, better service for the customer and less losses in the

supply chain, which ultimately translates to better value to the customer,” Mukherjee says.

On the growth prospects, Sharma avers, “A number of industry improvements will facilitate continuous growth of Indian logistics industry. These include execution of infrastructure development plans like transport network expansion and modernisation, and establishment of special economic zones, free trade & warehousing zones and logistics parks, and the government providing a friendly regulatory environment for the logistics industry. With these strategies, India is set to become an important freight hub in the Asia-Pacific region, besides China.”

Mustan says, “Outsourcing of logistics activities to third party logistics (3PLs) is set to increase. The outsourcing of retail logistics will be a core component of all logistics services provided by most 3PL players in the next 3 years. This will enable 3PL share of total logistics market to hit 5 per cent by 2014.”

RIGHT PRODUCTS ON SHELVESKnowing that in the retail business, consumer is king, the goal of retail logistics is to work efficiently towards achieving consumer satisfaction. The need to have the right product, at the right time, at the right place and in the right quantity, is a demand of the logistics industry. “If a vendor delivers the product correctly, suitably packaged at the warehouse and the warehouse maintains the product, keeping it in the appropriate form, following all inventory principles, it is visible for the store team to make an order for it. Further, if it is ordered, picked and dispatched in the right timeframe to the store, the goal is achieved,” Nair says.

Challenges faced by logistic companies while carrying out efficient SCM:• High cost of properties• Lack of desired transportation• Cost driven, not revenue driven approach• Different partnering on SCM based on

geography• Retention of manpower• Low margins• High cost of capital for infrastructure

development• No government incentive attracting investment

in logistics• Lack of IT interface• Lack of availability of skilled manpower• Poor flexibility & scalability• Poor infrastructure• Difficult to be in sync with suppliers

Inputs by Sanjay Sinha, MD & Founder member, Leeway Logistics

is all about achieving

greater co-ordination

and integration

Competitive

collaboration


INSIGHTS & OUTLOOK RETAIL SCM

TO keep pace with the fierce competition in the retail sector, it is important for retailers today to have an enterprising supply chain management (SCM) solution to help steer through the process of supply, distribution and warehouse management. To achieve this, retailers need to focus on varied aspects such as time, labour, transport, environmental factors, amount and type of inventory, as well as the costs involved. Therefore, the question is not whether the retailers need an efficient SCM, but whether the need is clearly seen?

Amidst business slumber, retailers need to think about ways to upgrade their existing methods of managing, storing and distributing inventory. Opining on the need for efficient operation of the supply chain, Vineet Kanaujia, GM - Marketing, Safexpress, avers, “With the kind of geographical and regulatory environment existing in the country, a retail company in India cannot operate without a smooth and efficient supply chain.” In order to provide efficient SCM solutions, it is important to keep certain factors in mind. Infrastructure, transportation management, resource optimisation, technology, cost-effectiveness and environment-friendly practices are some of these factors.

INFRASTRUCTURE The infrastructure in SCM involves aspects right from the warehouse and transit vehicles to the type of software used. With regard to warehouses, certain factors need to be worked on, a lack of which can result in major losses. These include well-maintained warehouse racking systems, hand pallet trucks, termite-free packaging for wooden containers and well-aerated, pest-free warehouses. Howard James-Scott, Chief - SCM, Gati, explains, “A warehouse should be designed according to the intended task and not built as something that we think will accomplish the task. Also, infrastructure for power supply is a major concern, particularly in the use of facilities for cold chain and temperature-controlled operations.”

Citing the importance of the overall infrastructure of SCM, Juzar Mustan, CEO, AFL Logistics, points out, “Investing in the right infrastructure at the right place is important. We need well-designed facilities like cooling centres, fruits & vegetables processing centres and staples repacking centres across the supply chain.

SUDHIR MUDDANA

The success of retail sector depends on four R’s of supply chain - right time, right place, right price and right quantity. To remain competitive, retailers today need to consider employing a better approach to plan and execute solutions for an efficient supply chain, which will go a long way in curtailing additional costs and strengthening customer satisfaction.

SMART SOLUTIONS

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y: Sanjay D

alvi


Proper facilities can help reduce product wastage and lengthen shelf life of some products by about 30 per cent.”

TRANSPORTATION MANAGEMENTAll vehicles used in transportation should be in good condition, and regularly serviced, at least once in six months. Scott avers, “The design and build of vehicles should be changed in line with the need for faster, more accurate and safer loading from the side, or rear, of the vehicle. Also, mechanical equipment should be used for loading vehicles, though the floors of vehicles in India currently do not support this requirement.”

Further stressing on other aspects of transportation, Scott says, “Road safety should be taken more seriously, as it is a requirement for both infrastructure and training & education. More rest areas, safe & usable overnight stay areas and greater vigilance from the highway police force are needed. The greatest percentage of accidents occur due to driver fatigue; thus, nationwide policing strategy to support these current, well-designed regulations for drivers’ working hours is needed.”

RESOURCE OPTIMISATIONOperational and resource optimisation is another important factor to easily recover the investments made, as it increases profit and sales. Earlier, companies did not realise the benefits of a good supply chain network design due to poor infrastructure and compelling tax-avoidance models. But with the improvement in the condition of roads and introduction of the goods & services tax, it is time to start evaluating network design. According to Mustan, retail companies stock the widest possible range of product categories and a large variety within that range. This complexity in the stock-keeping unit level results in physical product flows from suppliers or import gateways to stores that are complicated and difficult to manage. Good retailers begin by ensuring a clear understanding of product flow maps and then design (or re-design) supply chain networks for optimally managing these flows.

The current area of focus for both retailers and logistics companies is improving warehousing and distribution. “Besides, the focus should also gradually shift towards the processes involved before the arrival of products at warehouses. Some countries have seen the development of an entire logistics

ecosystem around retailers and suppliers, leading to mushrooming of ‘supplier communities’ around major hubs. Such communities make available specialised logistics services to suppliers at lower costs and with high service levels, taking advantage of the pooling of resources. The system benefits small suppliers who otherwise lack the scale to demand enhanced services,” explains Mustan.

APPROPRIATE TECHNOLOGYWith the advancement of technology worldwide, besides infrastructure and transportation, it is vital for retailers and logistics companies to use proper technology to support their supply chain services. Technologies like radio-frequency identification tags for inventory, bar codes, enterprise resource planning, etc can be adopted to ensure timely delivery of goods with the required amount of security. Use of inappropriate technology can cause a failure in carrying out the supply chain. Kanaujia opines, “Information technology (IT) plays a strategic role in the success or failure of any supply chain company. Supply chain entails a flow of goods, information and money; hence, information flow is most important here. As the Indian economy evolves, and supply chain moves towards becoming the sunrise industry in future, imbibing latest technology will play the most vital role.”

On the importance of technology in SCM planning, Mustan says, “Use of IT is integral to effective retail logistics. Both retailers and logistics companies need to invest in this area. Companies like Sainsbury’s and P&G have successfully incorporated rapid replenishment architecture within their systems. This development allows capture of point-of-sale demand and relays it to distribution centres, supply planners, customer service and respective suppliers to maximise supply-demand synchronisation.”

ENSURING COST-EFFECTIVENESSThe motive of all supply chain companies is timely delivery of goods. Time is an essential parameter based on which the modern world measures efficiency. Timely delivery of goods can help a logistics company to a great extent. It improves efficiency and saves massive costs, which would otherwise be incurred by the retailer.

Besides the various costs arising due to late deliveries, logistics companies should manage finances in terms of labour management, hiring transport, inventory storage and secure warehousing. Also, as the price of products for the consumer depends on manufacturing cost, retailer margins and supply chain cost, optimising finances becomes necessary.

GREEN SCM PRACTICEWhile managing the supply chain, factors like weather changes, truckers’ strikes, riots and natural climates should be considered. And, to maintain the condition of products, it is important to follow green SCM. Kanaujia avers, “The right way to efficiently manage a supply chain is to follow green practices. As major transportation in the country is happening by road, for any supply chain to operate in the country, vehicles need to have smoke containment devices to minimise carbon footprint. Warehouses also should practice green SCM practices and be energy efficient.”

ACHIEVING EFFICIENT SCMOver the years, the role of supply chain in Indian organised retail has expanded due to the boom in this industry. However, further rise of the Indian retail sector depends on effective supply chain; hence, efforts must be made by Indian retailers to maintain it properly. Keeping the driving factors in mind, companies need to make efforts to achieve success in retail by having a proper SCM.

Advantages of an efficient SCMHaving an efficient supply chain helps retailers to reduce lead time & costs and provide optimal customer satisfaction. Other advantages include:• Stores can easily identify potential stock-outs, and thus request

replenishment before the inventory declines to zero.• Suppliers are always prepared for the next order.• Product forecasts & supply schedules can be easily understood, enabling

space planning, establishing staffing needs and organising shipments.• Financial experts can plan the cost required and analyse margins in the

future.


INSIGHTS & OUTLOOK RFID IN RETAIL

THE retail sector – one among the fastest growing sectors – is moving forward at a steady pace. With the advent of multinational companies (MNCs) into this lucrative marketplace. In order to stay ahead, the retail companies are now looking at adopting the latest technology. For improving operational efficiency and reducing costs, radio-frequency identification (RFID) technology is a reliable option for track & trace and identification in the stores. The market for RFID is further supported by changing lifestyles, new products & services and evolution of standards.

According to a recent research report, globally, the RFID market is expected to grow about 17 per cent from 2011 to 2013 to a value of approximately $9.7 billion. The overall growth in RFID technology usage is expected to outpace other automatic identification technologies like the bar code. This phenomenal growth is the result of emergence of various applications in different verticals around this technology. At the regional level, the Asia-Pacific market will witness the highest growth in terms of revenue, accounting for 27 per cent of the entire RFID market by 2013.

In India, RIFD use is currently limited but looking at the advantages that it offers to companies, the adoption rate is going to increase sooner than later. Talking about sector-specific RFID

deployment, Frank Riso, Senior Director – Retail, Motorola, informs, “We have seen RFID adoption in several areas of the retail industry, in the apparel segment, both in departmental stores and specialty retailers item-level tagging. In the supply chain side, we have seen adoption of RFID at the case and pallet level and cold storage segments have started using temperature-sensing tags to track the state of the product in the supply chain. The most significant update is the use of item-level tagging in the apparel segment of retail.” On the same lines, Vinit Bhansali, Director, Copper Spiral RFID, says, “RFID adoption is limited in Indian retail sector, more so within the jewellery segment. However, the year 2010 has witnessed increased understanding of RFID in retail beyond the jewellery segment.”

MAXIMISING BENEFITS With the increasing use of RFID in various departments and stores, many retailers have reported improvements in operations and reduction in the overall costs. In a competitive business environment, there is an increased need for the retail industry to identify, track and manage the deployment of critical assets. In retail, some of the most common applications of RFID include tracking, inventory management, supply chain management, shrinkage,

SHIVANI MODY

Among the most talked about potential applications of radio-frequency identification technolgy is its ability to automate processes involved in retail by tracking and tracing products in the supply chain. The retail sector has slowly but steadily realised the utility of this technology in improving operations, reducing costs and enhancing better management of critical assets.

NEW-AGEDIGITAL RETAILING


in-stock correction, identification and authentication. One of the more popular applications of the technology is tracking the products being purchased and the destination where they are being shipped. The RFID technology is used to reduce stock-outs that typically delay consumers’ purchases. This, in turn, has helped reduce the inaccurate ordering at the store level and improving store-shelving practices. Furthermore, inventory management allows operations managers to know the exact quantities of product on the shelves and their warehouse, or daily purchases. By deploying such sophisticated technological solutions, some retailers in the fashion industry have seen a 90 per cent reduction in labour associated with inventory counts.

With the adoption of appropriate technology, the supply chain process too can be effectively controlled in terms of smooth transfer between purchasing raw materials, manufacturing, ordering and delivery to the warehouse, retail outlets, to finally reach the customer. Such a tracking mechanism comes as a boon while looking at sales of high-end products. The tracking and identification systems can also help in decreasing internal and external theft during the transfer of goods and even in the store areas.

Agreeing on the same, Pradeep Nair, Director (Software Group) – India/South Asia, IBM, says, “RFID enables proper track-and-trace mechanism. For instance, in a particular case, a client faced issues where liquefied petroleum gas (LPG) cylinders meant for domestic consumers were illegally diverted to commercial establishments. The company wanted to achieve greater efficiency in the supply chain of its LPG business and prevent the illegal diversion of cylinders.”

Deliberating further, Nair says, “The client was able to resolve the issue by implementing a comprehensive and integrated RFID-enabled solution for tracking cylinders. In the first phase of this system, cylinders are tracked when they pass through various workstations in the bottling plant. In the second phase, the cylinder tracking application is extended to distributors & customers to identify the end user and track the delivery of the cylinders.” RFID technology, besides its financial benefits, is also an environment-friendly solution, as it helps reduce the carbon footprint. RFID can


provide a solution that enables businesses and individuals to ‘see’ their energy consumption rate and emissions target in real-time and make them efficient.

With access to this information, customers are now looking to make informed decisions for purchases. Here, the RFID technology can help record the changing patterns of selecting products and shopping habits of customers. The real-time movement of goods and a record of the same can give valuable information to retailers. Bhansali opines, “With increased dependence on ‘freshers’ in the retail workforce and shorter cycles in sales and manufacturing, RFID immediately allows the retailer to use his existing software systems to obtain better analytical data as well as real-time reporting on inventory movement and sales data.” Elaborating on the same, Nair says, “A solution such as retail analytics can help retailers identify valuable data and convert it to actionable insights. Retailers can respond to consumers’ immediate needs by personalising offers and changing product assortments, which will help them to build loyal consumers. Such a process helps in creating a good fundamental base for the retailer to build upon.”

Riso gives it a different perspective, “In the supply chain, we have seen a reduction in mis-shipments and improved tracking of products. Also, in the stores, retailers have reported more significant savings, which include reduction in out-of-stocks from 60 to 80 per cent; better inventory accuracy from 98 to 99.9 per cent; reduction in cycle count times from 75 to 92 per cent; reduced inventory carrying costs from 30 to 59 per cent; reduced receiving time by 91 per cent. Additionally, it improved customer conversion rate by up to 92 per cent; increases in units per transaction by 19 per cent; increases in dollars per transaction by 6 per cent; and general increases in sales from 4 to 21 per cent.”

Most companies have had arguments supporting the use of bar codes instead of RFID tags. An advantage of RFID tags over bar codes is that these tags can be read even if they are out of sight and are not affected by degradation and wear. Although a problem with RFID tags is that they can be read even if kept behind other tagged items. This can result in potential misreads, but the advantages of this technology over-ride the challenges.

ADVANCEMENTS IN TECHNOLOGYOne of the emerging trends using RFID for retailers is wireless printing. Globally, retailers have reported cost savings, operational efficiencies and opportunities to improve customer service with the use of RFID. Other value propositions for retailers using wireless printing include a smaller carbon footprint, unlimited placement options, improved aesthetics, lower maintenance costs and improved safety & productivity.

Using a radio frequency (RF) interface, wireless printers can be used to connect the printer to the network, to a controlling PC or hand-held device or both. Andrew Tay, APAC President, Zebra Technologies, says, “By selectively replacing shelf-label printers, pricingguns, shipping label printers, receiptprinters & other label-generating equipment with flexible, wireless printers, the retailers can cut down on their ongoing printing and labelling expenses. These changes can improve customer service and productivity of floor staff,thus eliminating the need for cables. This can help eradicate a potential failurepoint and subsequent maintenance costs.”

Looking at customer convenience, many retailers provide price verification kiosks to prevent pricing errors. Shoppers use the kiosks to scan items to check the accurate price. Customers can also use the kiosks for locating items in the store without seeking out store attendants. Tay says, “Ideally, kiosks and point-of-sale scanners in the checkout lines are all connected to the same database. Globally, some kiosks offer shoppers the option of printing their own price labels, which often eliminates the need for stores to print and apply price labels for each item. This has reduced the pricing errors and even helped avert the legal notices that a retailer may have to face.” On this, Nair says, “The RFID solutions are now smarter and assist in tracking the consumption levels for each distributor, identifying unusual consumption patterns and short turn-around times indicating diversion. With a custom dashboard, the company can gain business insights from sensor data.”

BOTTLENECKSBesides the various benefits of using RFID, large-scale implementation by

the retail companies is still a distant reality. Problems like cost, compliance, compatibility, reliability, privacy and hardware upgrades need to be resolved before widespread implementation of RFID. Another obstacle in the growth of this technology is lack of awarenessof its uses by the industry. Many companies are still in the discovering stages of the uses of RFID technology. Further, the standards for RFID have recently evolved. Also, with the rapid modification and improvement in the efficiency of tags and readers, old equipment quickly become useless. A major factor hindering the large-scale adoption of RFID technology is the cost of the chip. Riso informs, “The cost of manually applying the tags is still amajor challenge.”

ENCOURAGING RFID USAGEPrimarily, educating consumers on the advantages of RFID will encourage manufacturers and retailers to adopt the technology. The systems integrators also need to ensure privacy and security concerns before retailers look to adopt the technology. The technology can improve the brand image of retailers by providing consumers with betterprice checking mechanisms andassurance of legitimate products. Citing the changing patterns, Bhansali adds, “With organised retail growing beyond the few ‘super sized’ retailers like Big Bazaar, Reliance, etc, we now seeretailers with 5-20 stores also looking at RFID to manage their inventory in a better way and understand the data flowing through their warehouses and shops.”

Riso believes, “Retailers will continue to invest in item-level taggingfor apparel segments, and the nextmajor breakthrough will come in cold storage to help avoid huge financial losses.”

Besides the cost issues, RFID technology needs to gain universal acceptance among retailers and their supply chain. This is possible if the initial implementations can record 100 per cent accuracy. RFID is a key technology for the retail industry to bring inbetter operational capability and reduce costs. Also, to tap the full potentialof RFID technology, it is necessary thatall stakeholders at all levels implementthe technology to develop theecosystem.

RFID in retail, continued


RETAIL FRONTRUNNER FUTURE SUPPLY CHAINS

TODAY, supply chain has become a strategic necessity that delivers a competitive edge for retailers. No longer just concerned about cost control, companies view supply chain as a key element of their business strategy. Rapidly changing consumer preferences, volatile inflationary conditions, quick time to market at reduced cost calls for a smart, efficient, seamless and agile supply chain network to manage the ever-changing needs of the customers.

Having mastered the art of managing supply chain complexities of the country’s biggest retail giant Future Group, Future Supply Chains has dramatically changed the way people perceive supply chain today.

Over the years, it has set an inspirational benchmark in the Indian logistics industry with its efficient and techno-savvy supply chain management.

The creator of the iconic brand, Future Supply Chains, Anshuman Singh, MD & CEO, believes, “Our mission is to improve the topline and bottomline of our customers by working as their partners in terms of increasing the fill rate and reducing overall operating cost.” Terming supply chain as a differentiating factor, Singh is of the view that managing supply chain infrastructure will have a revolutionary impact on the retail sector.

Seconding Singh’s thoughts, Samson Samuel, CIO & Head – SCM, Future

Supply Chains, says, “The core of retail is to ensure that the right product reaches the right place at the right time, which is enabled by an efficient supply chain. Thus, a retailer’s entire topline and bottomline are dependent on the availability of the products at the shelf. Essentially, supply chain has become a differentiator in retail and is important for customer retention.” He further adds, “The supply chain is unique, especially in the Indian context, as the country is a multicultural heterogeneous group where the consumer tastes change every few kilometre. This means that retailer’s offering to customers is region-specific, leading to multiple stock-keeping units (SKUs). The high real

Changing market dynamics, rise of the middle-class, varied consumer preferences and a vast demographic expanse are the key contributors taking the Indian retail sector to a gigantic growth phase. Amid these changes, keeping the shelves full with right products can be a daunting task for any retailer. Having dealt with all such extremities and being the pioneer in creating a strong supply chain network in India, is the supply chain arm of the country’s largest retailer Future Group – Future Supply Chains. With aggressive plans in place, the company is destined to lead through perfectionism in the supply chain domain...

ENVISIONING AENVISIONING A SEAMLESSSEAMLESS

PRERNA SHARMA

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estate rentals for retail leave no scope for retail stores to have any back-end store stocking of inventory. The combination of these factors leads to a unique Indian consumption supply chain – one that includes handling very large number of SKUs in pieces (eaches) as opposed to fewer SKUs managed in the form of pallets by most large retailers worldwide. Over the years, we have learnt ways to manage these complexities and have designed and executed supply chain solutions that are uniquely Indian.”

THE FIRM WITH A VISIONFuture Supply Chains is India’s first end-to-end consumer logistics company. Born from

the need to have a specialised end-to-end supply chain for consumption products, Future Supply Chains was established in April 2007. Over the years, the company has developed competencies in managing the various operations involved in supply chains across different product categories. Delivering millions of products to millions of consumers on a daily basis, the company has carved a niche for itself in the supply chain industry.

Having established such a strong supply chain base in the country, the company takes over the entire task of managing the supply chain away from the businesses so that they can focus on their core activities.

Deliberating on the same, Singh avers, “Looking at the growth of Future Group entities, we wanted to expand the scope of supply chain. Projecting promising growth prospects of all our business units, we had set-up a separate logistics unit nine years ago. I think it was a smart move by the company knowing that the Indian retail sector is set to grow by leaps & bounds. It also provided us a business opportunity to simultaneously expand our base in supply chain.”

With regards to the company’s offerings, Singh elucidates, “We offer supply chain solutions to all players in the consumption business. This covers all the manufacturers, brand owners and distributors of food, fashion, home and general merchandise. In a nutshell, we manage the end-to-end supply chain of the company. Apart from providing services to the parent company, we also provide warehouse and transportation services to external clients.”

Today, the company provides services to over 1,100 retail outlets across 25 distinct retails formats and manages more than 2.6 million SKUs. These product categories require 30 distinct supply chains to be managed simultaneously, each with its own distinct requirements that needs customised solutions.

Managing supply chain functions of such distinct categories with numerous volumes has certainly been a challenge for the company. But the company sees it as an opportunity to solve the complex web of supply chain. Providing insights on the same, Singh remarks, “Retail supply chain is one of the most complex supply chains to manage. Each product category has a unique supply chain requirement. Each requires a different treatment for handling, storage and transportation. On top of that, we have to handle huge volumes as well.” Here comes the daunting task of handling 2 million products, replenishing goods in about 1,000 plus retail stores across the country on a daily basis and ensuring that the shelves are filled with the right products. This becomes all the more crucial in a market where organised

SCM WORLDSCM WORLD


retailing is still at a nascent stage. While the challenges were many

in front of the company in creating a seamless supply chain network, yet with sheer determination and teamwork, the company has excelled in building an unparalleled retail supply chain framework in the country. Upamanyu Bhattacharya, COO & Head – External Business, Future Supply Chains, opines, “Thanks to the sheer scale and expertise required to handle the supply chain of India’s largest retailer, Future Supply Chains now has the capability to manage any consumer supply chain in the Indian scenario, however complex it may be. The opportunity for Future Supply Chains therefore, is to play a key role in enhancing the efficiency of the consumer supply chain in India, and upgrade the supply chain of its clients.” Adding to this, Samson says, “Over the last few years, we have been working closely with Future Retail to increase efficiencies in our supply chain by maximising our throughput and productivities from the existing infrastructure. We have consolidated warehouses, which have helped in reducing inventory carrying cost and enabled better economies of scale. Warehouse

consolidation has also resulted in load consolidation for transportation, which, in turn, has reduced transportation costs. We also provide value-added services like automatic replenishment system (ARS), stock aging analysis, increasing use of cross-docking and packaging standardisation. All these initiatives have significantly improved inventory turnover, and have reduced markdowns and stock-outs.”

SECURE GUARANTEED ON TIME IN-FULL FLOOR READYManaging a strong and stable supply chain is a daunting task, knowing that the customers’ needs must be fulfilled in the shortest possible time. For the same, the company has implemented a unique ‘secure guaranteed on time in-full floor

ready (SGOTIFF)’ practice, which ensures that the store personnel do not have to manage any supply chain at their end. Ravikant Parvataneni, Head – Projects & Planning, Future Supply Chains, explains, “After the goods reach store, the store personnel should not face any complexity in managing the supply chain. In an ideal scenario, the merchandise should just need to be placed on the designated shelves. In order to attain this level of precision, we have devised a way in which right from the distribution centres, the merchandise is sent in such a manner that the store personnel would only have to put them on the right shelves rather than sorting out which goods to be kept where. We pack it section-wise, which gives storekeepers an added advantage of keeping the stocks in the right place and in the quickest possible time.” Adding further he says, “To achieve such this precision, we plan to deploy roll cages, which take the merchandise from the store to the rakes where the goods need to be placed without causing damage to the goods and also avoiding any chance of pilferage during transit. Trucks are particularly designed to carry such roll cages to stores, as they need additional attachments such as tail lift for loading & unloading roll cages. The reason for having an additional attachment is that the truck level has to match with the dock level, which is not possible at every store.”

EXPRESS SOLUTIONSFuture Supply Chains provides a full-fledged multimodal express transportation service. The company’s transportation

network operates on a robust hub-and-spoke design, structured with 11 transportation hubs across the country. This transportation network has brought in an innovation in the form of a new system of highly economical line haul capability (with dedicated hi-cube containerised trucking) for carrying volumetric goods. Elaborating on the same, Singh says, “We offer factory-gate logistics, national distribution of goods,

Future Supply Chains, continued

Put-to-light system deployed by the company in its warehouses to enhance effi ciency and productivity

Future Supply Chains’ success secrets

Recognised as the retail supply chain frontrunner in the industry, Future Supply Chains is creating inspirational benchmarks for others to follow. Some of the unique practices implemented by the company are:

• Secure guaranteed on time in-full floor ready (SGOTIFF) practice ensures the merchandise, from the distribution centre, are packed and delivered in a shelf-ready package to ensure immediate display of garments with no further inputs from the sales staff.

• The company operates a dedicated fleet of about 500 vehicles, augmented by several hundred outsourced vehicles on a daily basis, which makes it the largest home delivery service provider in the country.

• The company operates 4 reverse logistics centres with a footprint of 0.2 million sq ft and handle 0.3 million pieces of apparel every month.

• The company has implemented a state-of-the-art put-to-light merchandise sorting system coupled with outbound labelling and weight verification automation. The combination of WMS and put-to-light sorting/outbound automation is first of its kind for any company in India.


and city logistics that includes store deliveries and home deliveries. We operate a dedicated fleet of about 500 vehicles augmented by several hundred outsourced vehicles on a daily basis, monitored through a transportation management system (TMS) that ensures visibility of all consignments on a real-time basis, enabling reliable and timely movement of consignments at lower cost.” Giving an insight into future endeavours, Singh informs, “We are now taking our tracking system to the next logical level with the introduction of a GPS-based vehicle tracking system (VTS) that tracks and updates the movement of each of our vehicles running on line haul and feeder routes on a minute by minute basis.”

BRAND DISTRIBUTION SERVICES The FMCG distribution system in the country is fragmented and unwieldy. A new brand entering the market needs to have multiple distributors at multiple locations to make the process time and cost-effective. Terming it as the need of the hour, Singh explains, “Given these significant gaps, we felt the need to set up brand distribution services, leveraging on our existing capabilities of providing supply chain services to the extensive network of Future Group stores across the country. Brand Distribution Services help brands gain national distribution reach by taking over the task of distributing the products across the burgeoning modern retail network in the country. For the brand owner, it is a single-window reach into India’s modern retail.”

He further adds, “Our unique strengths arise from our pan-India reach, existing organisation to cater to modern trade and institutional customers as well as robust and reliable logistics infrastructure of Future Supply Chains at the back-end. In addition, we are capable of handling activities related to placement, category management, merchandising and retail promotions if the brand owner so requires.”

REVERSE LOGISTICSHandling reverse logistics is always a challenge in any supply chain scenario. Since unsold merchandise block up valuable retail space as well as cash, most companies need a process to liquidate this merchandise, thus freeing up capital and space. However, given the nature

of remaining unsold merchandise, this process is cumbersome, and thus requires dedicated handling.

The company’s reverse logistics (R4L) centres provide refinishing, refurbishing, repair and repacking services, thus making the returning merchandise store-ready again. To this, Samson adds, “Currently, we operate four R4L centres with a footprint of 0.2 million sq ft and handle over 0.3 million pieces of apparel per month. While the current capacities are dedicated mainly to handling of reverse logistics in the apparels supply chain, we are planning to set up reverse logistics capabilities for furniture and consumer durables as well.”

IT AT ITS BEST Future Supply Chains has embarked on a strategy that leverages IT as an enabler to serve its customers faster, better in a cost-effective manner. The company’s investments in IT helps it differentiate itself from the competition with value-added services and lower supply chain costs. The cornerstones of the company’s IT strategy are driven by its vision to make its customer’s business profitable. A good blend of people, process and advanced technology has enabled Future Supply Chains to realise its vision to make its customers profitable in a very short time frame.Infrastructure: Future Supply Chain’s network and business applications have been created to support its customer’s scalability, reliability and availability requirements. Company’s warehouses have best-in-class warehouse management software solutions. And the scale at

which it operates makes Future Supply Chains, one of the largest users of online centrally hosted warehouse management software solutions in the world. This system has been in use for more than a year now and has delivered increased efficiency and throughput, ensuring optimum utilisation of warehouse space with increasing year-on-year volumes. To cater to very high volume requirements during the peak season and robust sales growth without depending too much on labour and running round the clock shifts, the company has implemented a state of the art ‘put-to-light’ merchandise sorting system coupled with outbound labelling and weight verification automation. The combination of WMS and put to light sorting/outbound automation is first of its kind for any company in India. To take this one step further, the company is currently investing in inbound automation along with cross docks/flow through capabilities apart from light sorting equipment and outbound automation for its FMCG/Fresh DCs. This will drive very high velocity, accuracy and fill rates for its customers.

Every consignment/order fulfillment is tracked with high degree of accuracy across the whole supply chain using high-end GPS and GPRS technology. Every action in the supply chain is monitored for handling exceptions and hence, providing the key inputs for people to take corrective measures where necessary. With GPS enabled tracking every truck is monitored for exceptions and the team is proactively able to take actions.

With the upcoming IT projects like last mile optimisation, the company will be able

Having associated with India’s biggest retailer, we understand customers’ pulse. We believe in working with our customers as their partners to improve their topline and bottomline performance. In our constant pursuit to serve our customers in a better

way, we are planning to develop 10 million sq ft warehousing space and are working on creating a full-fledged express logistics network across the country. Exploring international logistics and modern trade distribution are going to be future focus of our company. ANSHUMAN SINGH, MD & CEO, FUTURE SUPPLY CHAINS


to accurately forecast the transportation capacity and route requirement for next few days. This will ensure that there is no slippage in the delivery commitments made to its customers.

Agile supply chain is the key to be able to service varying demands across multiple product categories. Therefore company has also invested in network optimisation solution, which it can use to refine its network of hub and to meet the ever changing supply chain needs of its customers. This will help the company to weed out non-performing assets and reduce operating costs.Integration: The company understands the need to provide information to all the stakeholders on a timely basis with high accuracy. With the best-in-class Cisco

network across the country, the company is able to ensure high level of information availability for taking timely decisions in the supply chain. Easy information and data exchange is crucial to 3PL companies, towards which the company has built a robust and user-friendly integration backbone that seamlessly connects with any customer system and supports all industry standard formats/protocols of information exchange required to fulfill. Company also has plans to provide access to every piece of SCM information right from the order fulfillment to payment cycle.Collaborate and connect: Future Supply Chains provides its customers and suppliers with near real-term visibility of

the demand and supply situation. The partner portal provides the status of the orders, inventory and transactions on an on-demand basis. It provides track & trace capability, proactive visibility through supply chain alerts, which can be set-up to reach partners IT systems, mobiles, emails in a timely manner for informational or exception management purposes. The portal also provides the status of reporting capabilities around service levels and other pre-defined and commonly used operational parameters.

FUTURE BECKONS With the determination to become the leading player in the supply chain industry, the company is on an expansion mode. Revealing its expansion plans,

Singh elucidates, “We are planning to develop 10 million sq ft warehousing space in India. Apart from this, work is on to create a full-fledged express logistics network across the country with approximately 100 branches. We are exploring international logistics in a big way. Modern trade distribution another aspect that we are focussing on.”

Agreeing with this, Samson informs, “We are currently focussing on modernising our infrastructure and bringing it at par with the developed countries. We are also bringing in the latest technology solutions for supporting the physical infrastructure. This includes consumer logistics warehouses, vanilla

warehousing, inland container depots (ICDs), container freight stations(CFS) and cold storage. We currently pack and send up to 2 million pieceseveryday to our stores and, by 2012, we will be handling up to 20 million pieces everyday. This will require infrastructure build-up to ensure smooth operations with the ever-increasing volume thatwe handle.”

With the country providing ample growth opportunities for the companies in retail logistics space, expanding horizons is the next logical step. Agreeing with this, Bhattacharya believes, “Due to historically poor infrastructure and complex taxation system, Indian companies have not upgraded their supply chain from the perspective of increasing efficiency. With the ongoing upgradation of India’s infrastructure as well as rationalisation of its taxes, this is the time when a number of companies across industries are looking to upgrade their supply chain. We have built our model on the mantra of ‘higher efficiency at the same current cost or same efficiency at a lower cost’. We have already proven this model with the Future Group businesses and are now offering this capability to our external clients. Therefore, we think that the opportunity is huge, as India is on the cusp of making this shift.”

Today, the company is proud to be a part of millions of Indian families, bringing smiles into their lives, by fulfilling the dreams of the common man of acquiring the best products at a reasonable price. All this has been made possible by an unparallel supply chain network that provides the company a clear lead to become the preferred retailer of India.

With a mission to increase the profitability of customers through best-in -class SCM solutions in shortest time-to-market and lowest cost-to-market, Future Supply Chains is determined to create an unparallel supply chain network in the country.


Snapshot of Future Supply Chains’ scalability:

Future Retail has created India’s most attractive popular retail shopping festivals like Big Bazaar’s Sabse Sasta Din (January 26), Future Group shopping festivals and Mahabachat (August 15). During these mega retail events, business volumes spike by over 500 per cent of the average daily business. Future Supply Chains delivers the required products seamlessly to Future Group’s stores round the clock. This keeps the retail store shelves filled with goods even as customers continuously empty these shelves as they grab the best deals of the year.

Collaborative logistics inspires

i ovation And


FUTURE SUPPLY CHAINS RETAIL FRONTRUNNER

FUTURE Supply Chains operates in four main domains of consumption business – fashion, food, home and general merchandise – which have varied product lines. These domain have their own distinct requirements that need 30 distinct supply chain solutions. The intricacies of

each category are mentioned ahead.

FASHION SUPPLY CHAINFuture Supply Chains’ fashion supply chain expertise is to ensure that the merchandise reaches the retail stores in short time-to-market and at low cost-to-market. The

company manages five distinct supply chains in the fashion domain for the Future Group, including two independent supply chains for apparels – fashion and value. Future Supply Chains has the expertise for managing a fast and responsive supply chain with short time-to-market for high

Having gained expertise in managing the supply chains of almost all retail segments over the years, Future Supply Chains today exhibits an unmatched leadership in this space. Here’s a snapshot of the diverse portfolio handled by the company in a seamless manner most proficiently.

ExhibitingExhibiting

PRERNA SHARMA

Fruits & Vegetables

StaplesPackaged Foods

Dairy Products

FMCG-Food

FMCG- Non Food

Home & Personal Care

FMCGCold Chain

Fresh Foods

Luggage

Plasticware

Crockery

Utensils

Sports Goods

Footwear

HardGoods

Books

Multimedia

Toys

IT Products

Gift Items

SoftGoods

Consumer Durable& Electronics

HomeImprovements

FurnishingsFurniture

NationalBrands

PrivateLabel

PaintsHomeDecor

HomeLinen

HomeFurnishings

Furniture

Apparels

Accessories

FashionApparels

ValueApparels

Watches & Sunglasses

Perfumes &

Cosmetics

Other Accessories

FASHION

FOOD

GENERAL MERCHANDISE

HOME

CONSUMPTION

UNMATCHED LEADERSHIP



fashion products and separate low-cost supply chain for value apparels.

Explaining the ever-increasing need for an efficient supply chain in this segment, Samson Samuel, CIO & Head, Future Supply Chains, avers, “Supply chain becomes critical for an industry such as fashion, where trends change frequently and inventory carrying costs are high. Efficient supply chain management (SCM) reduces markdowns and ensures higher realisation for products, thus increasing margins. In other words, efficient SCM ensures proper flow of information and material, thereby playing a critical role in smooth functioning of retail organisations.”

The company has state-of-the-art warehouses and distribution centres across the country, which ensures smooth inventory management. This fully integrated, end-to-end supply chain service provider collects the merchandise from the vendor’s facility and transports it to one of its efficient distribution centres. On arrival at the distribution centre, the merchandise is physically checked and then scanned. As per PV Sheshadri, Head - Operations, Future Suply Chains, “Our smart warehouse management system (WMS) scans the

entire storage and allocates a suitable bin for particular merchandise, for a putaway. After the system generates a query to send a particular piece of merchandise, a purchase order is generated. After the order is received at the warehouse, the merchandise sent towards the stores, is picked up using the WMS and put-to-light sortation device. The box is labelled, sealed and sent to the dispatch area from where it is then sent to the respective stores.”

The process minimises errors and ensures that the right merchandise reaches the right store in the right quantities and at the right time. The merchandise is packed and delivered in a shelf-ready package to ensure immediate display of garments with no further input from the sales staff.

The company has deployed state-of-the-art technological solutions in its warehouses across the country to enable continuous improvement in its efficiencies. Some of these are: Warehouse management system: Moving products to and from the warehouse is a dynamic process. It is important to have the ability to make real-time adjustments anywhere in the supply chain between the supplier and

the customer. A proper WMS tool allows the company to do this. The company currently operates a best-in-class WMS from Infor. This WMS tool enables the company to keep a check on what the inventory is or its availability, organise work and allocate resources. The goods are received, ‘put-away’ systemically and physically on a specific bin and then dynamically picked as per order requirement. This, therefore allows the company to optimise overall inventory levels, improve labour productivity by making the picking process efficient and significantly improve order fill rates and accuracy of dispatches.Put-to-light technology: This technology is one of its kind and the first technology to be installed in the country. It dramatically improves the efficiency and accuracy of dispatches to the stores. It is primarily a light-directed sorting system, which significantly enhances speed and accuracy of distribution of products to retail outlets, with lesser manpower. It is highly scalable on both fronts – number of stock-keeping units (SKUs) as well as stores. The intelligence built into the system simplifies the job to be done for the team and significantly reduces scope for human error. As a next step of verification, all boxes packed, are weighed through a highly sophisticated print-and-apply system. In this system, the actual weight of all packed boxes is cross-checked against system-calculated weight. If the boxes pass the weight test, a label with all the details is automatically applied, ensuring that typographical errors during weight recording are eliminated. Further, in case the weight test is negative, the boxes are automatically diverted to a manual checking station where all these boxes are opened, checked and re-labelled.

Agrees Sheshadri, “Put-to-light system is an efficiency enhancer that aids in inventory management as well as enables accuracy check. By deploying this system, our fill rate has increased from 70 per cent to 95 per cent, which is one of the biggest differentiating factors in retail.”

Agreeing with this, Samson says, “Our put-to-light system, the only such implementation in the country, works along with the WMS tool in delivering enhanced efficiency at our distribution centres. This is a light-directed sortation method used mainly where each picking is required (mainly for retail stores).”Here, the picking process is split into

Fusion of Indianness with the world’s best techniques and processes, enables us to become a thought leader in consumption supply chain, namely fashion, food, general merchandise, furniture, consumer durables & electronics. ANSHUMAN SINGH, MD & CEO, FUTURE SUPPLY CHAINS

A glimpse of conveyor system supporting advanced put-to-light system


two steps: The first step is batch picking (as against the each-picking process commonly used by standard WMS) followed by a light-directed sortation mechanism. Using this system, the company has been able to achieve order pick accuracy of almost 100 per cent, an increase in the sortation speed by more than 40 per cent and has dramatically widened the order processing capacity of its distribution centres.

The benefit to the retail store is not only a high-order fill rate but also segregated packaging, which is category-specific, and therefore completely shelf-ready. Additional sortation is not required here, which saves valuable time and effort at the retail end.

FOOD SUPPLY CHAIN The food supply chain is one of the most complex and difficult-to-manage segments due to its perishable nature and short shelf life of the products as compared to other supply chains such as electronics, home needs, consumer durables, etc. It also requires a robust infrastructure of warehouses and transportation network connecting suppliers, manufacturers, distributors and retailers. Over the years, Future Supply Chains has developed expertise in managing the food supply chain in the most efficient manner. Following are some of the factors that add to its advantage:• Future Supply Chains has gained and

mastered the art of managing the food supply chain due to its association with Food Bazaar.

• In-house expertise to manage perishables (fruits & vegetables, dairy, meat, poultry, bakery) and non-perishables (FMCG-food, staples, processed food).

• Future Supply Chains has state-of-the-art warehouses across the country, which cater to the customers’ needs

• There is a strong in-house transportation department with fleets of vehicles for every need and type.

• Availability of most advanced WMS to ensure all aspects like First In, First Out (FIFO), lot management, product traceability, product recalls, etc.

• Availibility of transport management

system with vehicle tracking facilities to track product movement at every stage of transportation (real-time visibility).

• Strict adherence to standard operating procedures, which ensures food safety at each stage of product handling.

GENERAL MERCHANDISE SUPPLY CHAINGeneral merchandise (GM) solutions comprises of 11 distinct supply chains, as GM is the most peculiar of all product domains due to vast variations in size and value of the products. With regard to the varied segments in this space, Supratim Ganguly, Chief – SCM, Future Supply Chains, elucidates, “The handling requirements of these product categories are diverse, ranging from handling fragile products like crockery to goods like luggage and household utensils. We have designed customised vehicle bodies specifically to accommodate GM’s low-value voluminous cargo, keeping transportation costs low. Initiatives like bulk packs, cross-docking and auto-replenishment systems lead to improved supply chain efficiencies and reduced cost.”

HOME SUPPLY CHAINThe supply chain of the home category is unique because of the following factors

– requirement for a high service orientation in the management of the customer touch point; life-time relationship with customer and need to do lifecycle management of the product which requires building up of reverse logistics capability including after-sales support as well as high-value, high-involvement category for the customer, etc. However, the category is evolving in a manner that results in increasing pressure on margins and costs.

Elaborating further, Ganguly says, “In view of technological advancements and rapid product obsolescence, the time to market in the finished goods supply chain needs to be as short as possible, i.e. a short and efficient supply chain is the requirement, which also has quick response time to demand signals.” In particular, storage solutions need to address the dimensions of storage constraints in terms of stacking heights and manage the large

size of individual items while providing for traceability of individual SKUs in some product categories like mobiles and component-level storage of knocked-down products such as furniture.

Since home products are high-value as well as damage-prone, they require careful handling and transportation. The company’s customised storage solutions and padded vehicles ensure that high-value furniture and electronic products reach the customers’ home in perfect condition. The home delivery vehicles are tracked through global positioning system/general packet radio services (GPS/GPRS), which update the customer on the exact status of their consignment on a real-time basis.

EXCELLING BEYOND EXCELLENCEHaving proved its mettle in catering to the diversified segments of retail in the most efficient manner, the company has become an iconic brand to reckon with in the supply chain industry. With the company’s aggressive plans to expand its business manifold, sky is the limit for Future Supply Chains’ big mission, “Delivering everything, everywhere, every time for every Indian consumer in the most profitable manner,” which is exactly what the mission of the parent company Future Group is all about.

One of the apparel distribution centres of Future Supply Chains


SMART STRATEGIES COLLABORATIVE PARTNERSHIP

It’s no longer enough to build supply chain that is e

fficient, demand-

driven or even transparent…The supply chain of tomorrow must

be SMART! Leveraging on the strengths of the other links of this

supply chain, be it your competitors or customers, is one of the

SMART strategies of doing business. Competitive collaboration and

collaborative partnership are all about opportunities for greater

coordination, integration and collaboration between logistics service

providers and service users. Steer your way through unfamiliar

landscape of collaborative partnership by implementing these

7 immutable laws and realise enormous payoffs…


NOT so long ago, we began to understand that relationships were the key to a successful business. Since then, organisations across the globe have discovered just how difficult and challenging it is to form and sustain these working relationships. While the need for these relationships still exists, it has become apparent that the model companies have been following is incomplete. Collaboration is the missing link.

When two or more organisations agree to work together, synergy is a common outcome. This is readily apparent, for instance, when buyers and sellers agree to share point-of-sale product information, so as to better understand demand in the marketplace. Taking this phenomenon one major step further, the essence of collaboration suggests that competencies are created when collaborative activity actually takes place. An example of this might be the sharing of retail space by two firms, each carrying seasonally popular lines of merchandise. By collaborating on the ownership and utilisation of retail space, each is able to achieve its own objectives and also reinforce the ambitions of the other.

The idea of collaboration is not one that always comes naturally to organisations, especially between companies offering the same or similar products or services. While most competition occurs in the marketplace itself, the lack of certain types of collaboration among competing firms sometimes creates inefficiencies which are experienced by all. In terms of a logistics example, consider that consumer product manufacturers sometimes go to great lengths to ensure their products are not transported from plants to customers’ distribution centres with products of competing firms. While this policy has a certain logic, it creates logistical cost inefficiencies that could be mitigated if the competitors shared vehicle capacity for movements having similar needs. In this way, collaboration could be responsible for significant cost savings. Also, it makes sense, considering that retailers routinely co-mingle competing products as they are transported from distribution centres to retail stores. When organisations refuse to collaborate, real losses may easily outweigh perceived gains.

In addition, as firms intensify their efforts to examine and understand their own core competencies, the need to collaborate with other organisations will become more and

more apparent. Given the complexity and dynamic nature of today’s rapidly changing business world, it is a mistake for any one firm to try to ‘go it alone’.

Working closely with other organisations is a concept that is rapidly gaining acceptance among market leaders who understand that collaboration is imperative to their continued success.

In this regard, the 7 immutable laws of collaborative logistics identify priorities for true collaboration in which organisations across the entire supply chain can thrive in unison.

LAW 1: MUST RESULT IN REAL AND RECOGNISED BENEFITS TO ALL MEMBERSFor collaboration to be successful, all companies must be able to quantify the benefit they are enjoying from the process. This rule applies equally to both shippers and carriers. Ideally, each member would be able to compare favourably the gains and losses of a collaborative effort with those of a similar but independent activity. However, before this comparison is possible, companies need to know their actual gains and losses. Furthermore, they must believe those gains and losses have been shared equitably among all members in accordance with the details of a mutually agreeable business process.

Members of a collaborative community benefit from the ability to share resources without individually incurring all of the associated costs. The objective is to maximise benefits while minimising costs. When resources are shared, each firm must agree on a method of equitably allocating the gains and losses.

Likewise, collaborative logistics networks must allow members to establish rules of engagement, which define the equitable allocation of gains and losses. These rules are essentially a mutually agreeable business process that members will use to allocate gains and losses. There is no unique formula for the development of these rules.

One collaborative community may establish a process that ensures that the actions of individual companies never compromise the benefits to other companies; another may agree to allocate all gains and losses equally among all companies.

As an example, let’s look at some issues facing a manufacturer of styrofoam coolers and another of bottled water, both wanting

to ship their goods to the same geographic area. Assuming there is an opportunity for gained efficiencies since neither is able to fill an entire truck, the concept of collaboration may appear to have some merit. First, however, the two parties need to establish their rules of engagement. The manufacturer of Styrofoam coolers states that the bottled water firm should pay 50 per cent more of the shipping costs because of the significant weight of the water. However, the bottled water firm believes the styrofoam cooler manufacturer should pay 50 per cent more, because the coolers take up so much space. By working together to establish rules of engagement, each collaborating member gains an understanding of the other members’ business objectives. With this understanding comes the insight necessary either to strengthen or disengage from partnerships, depending on the details of each situation.

As the level of collaboration increases, so do the benefits and the risks. By establishing rules of engagement at the start of the collaboration and modifying them as the relationship continues, network members are better equipped to preserve their individual business objectives. Just as critical as the development of the rules of engagement is their enforcement. Each community must continually measure the compliance of its members and make this information available to the entire community.

Another important message to communicate is the result of the collaboration. As the quantifiable benefits of collaboration are reported back to the community, each member gains confidence in the relationship and will likely increase the organisation’s level of commitment.

LAW 2: MUST ALLOW MEMBERS TO DYNAMICALLY CREATE, MEASURE AND EVOLVE COLLABORATIVE PARTNERSHIPUnlike many e-commerce initiatives that focus on business functionality and neglect the activities associated with creating and evolving a network of members, collaborative logistics networks are dynamic. Their flexible framework encourages partnerships to form and reform organically. In fact, collaborative logistics creates a fluid environment that can enhance an organisation’s process and evolution.

Successful networks must allow


participants to easily and efficiently engage in a number of partnering activities in order to attract and maintain members. Members must be able to quickly:• Investigate – Understand the value

proposition prior to joining the network

• Integrate – Synchronise individual firm business process with those of the network

• Acclimate – Find potential partners on the network that may add value

• Negotiate – Establish the rules of engagement with a collection of partners

• Cooperate – Share resources according to the rules of engagement, transact on the network creating gains via shared resources

• Evaluate – Measure the benefit/cost of collaboration for each member firm

• Regenerate – Extend or regenerate the collaboration assuming it has benefited each of the member firms.Through involvement in these seven

staged activities, companies can determine how much value the collaborative logistics network offers to their business. As long as the gains are greater than the losses, a

company will be inclined to remain on the network and maintain such alliances with other companies.

Historically, organisations have tended to believe that successful relationships require long-term commitment. Today, permanent relationships are no longer always feasible or appropriate. Over time, an organisation evolves in different directions, with each significant change requiring a new set of partners who offer a better strategic fit. A collaborative logistics network must be sufficiently robust to allow members to adapt their collaborative efforts to their changing needs.

LAW 3: MUST SUPPORT CO-BUYER AND CO-SELLER RELATIONSHIPSBefore delving on this point, it should be stated that the “co” means collaborative-buyer and collaborative-seller, not collusion. Typical e-commerce marketplaces focus

on buyer to seller collaboration. However, by gathering buyers and connecting them to a supplier base, the baseline model serves only to promote and reinforce the traditional adversarial relationships that exist between many buyers and sellers. Furthermore, it is a connection where efficiency improvements are challenging to achieve, principally because it is not a truly collaborative environment in which participants share information and resources equally.

Collaborative logistics extends the buyer-seller model to allow for buyer-to-buyer and seller-to-seller collaborations.

In fact, it even encourages collaboration between competitors. This is a model that some organisations may not readily accept. However, it is the one they must adopt in order to maximise efficiencies in the future. Organisations must be open to establishing a more collaborative approach with other organisations – even those that share the same customer base. Then, once they have worked together to create improved efficiencies, they can focus on competitive strategies.Buyer-to-Buyer Collaborative Example:Three large manufacturers collaborate

in a given set of lanes to share private fleet capacity. As a result, asset utilisation, cost reduction and service levels increase for all three parties. Considering some of the industry specific, multiple company procurement initiatives in existence today (e.g., automotive, chemical, etc.), this form of collaboration is expected to grow in terms of acceptance and usage.Seller-to-Seller Collaborative Example:A group of carriers works together to offer shared capacity with two manufacturers, establishing long-term agreements that result in efficiencies along the entire supply chain. Examples of this include ‘vessel-sharing agreements’, which have been utilised in the ocean shipping industry for some time, and an emerging number of such relationships among firms overseas.

LAW 4: MUST PROVIDE A FLEXIBLE SECURITY MODELCurrent logistics service marketplaces focus on public markets for logistics

services. Public marketplaces allow all members equal access and provide the best liquidity. Private marketplaces, on the other hand, typically allow members to selectively collaborate with a subset of the membership that is known to meet service and volume requirements.

A collaborative logistics network must offer a combination of both public and private markets. It must allow members to quickly and easily establish public, private and semi-private relationships between themselves and other members. At a transaction-by-transaction level, members need to have the flexibility to limit their exposure in data-sensitive situations; most participants want to be able to choose their partners, not have the network determine what it thinks is an appropriate match. Conversely, members should also be able to share information openly to gain more forward visibility in the supply chain. Each company’s operational data, which resides in a single repository on the network, is also available publicly to all participants.

This flexibility allows members to collaborate with different groups of partners or within markets in different areas of the country or world. An important feature of multiple collaborations is the ability of the companies to form their own alliances within the membership and to limit risk. Members select their level of involvement and determine the viability of collaboration in part by performing comparative analyses of measurements such as the prospective partner’s key performance indicators.

LAW 5: MUST SUPPORT COLLABORATION ACROSS ALL STAGES OF BUSINESS PROCESS INTEGRATIONOrganisations will be in different stages of business process integration as they join in collaborative efforts. Depending on factors such as volume and the scope of their infrastructure, organisations fall within one of the following four stages of integration.• Stage 1: Messaging – Able to

synchronise their individual business processes through messaging transactions such as EDI and XML

• Stage 2: Shared Data – Able to share historical data for reporting and process validation

• Stage 3: Shared Process – Able to create and share a single business process to be used by all members, across multiple enterprises

Collaborative partnership, continued

Collaborative Logistics creates a synergistic environment in which the sum of the parts is greater than the whole. It’s a business practice that encourages individual organizations to share information and resources for the benefit of all.


• Stage 4: Shared Results – Able to establish and automate cost- and gain-sharing agreementsCollaboration is easiest when

organisations are operating at the same stage of integration. However, collaborations are also possible between organisations at different ends of the spectrum. A collaborative logistics network must be able to support the enterprise needs of all members, regardless of the extent to which their capabilities are automated. By doing so, the network greatly increases the options available to all members.

By supporting collaboration across the spectrum, the member network can offer expanded options and fluid partnerships that extend traditional buyer/seller contracts. The combination of long-term alliances established within a private network and short-term partnerships formed via a public or semi-private network represents a powerful set of collaborative tools for all members, at all stages.

LAW 6: MUST SUPPORT OPEN INTEGRATION WITH OTHER SERVICESBecause logistics is a horizontal market, a collaborative logistics network must provide both logistics functionality for the vertical procurement network and facilitate logistics collaboration between vertical procurement networks. This is achievable only if the network is open to connect to other logistics and procurement networks, within the same and across different industries.

Each network delivers a uniquely powerful set of tools to members. As links between networks grow, the greater the potential gain to their members. Even networks offering similar services must be able to join the federation, because to exclude anyone is to limit the scope of options and the resulting benefits and value. In a collaborative logistics environment, the sum of the parts is greater than the

whole when the network supports open integration with other services.

LAW 7: MUST SUPPORT COLLABORATION AROUND ALL FIVE OF THE ESSENTIAL LOGISTICS FLOWSCollaborative logistics provides complete visibility to the entire process flow, from beginning to the end, to all participants. Members gain forward visibility throughout the supply chain, as well as the ability to create efficiencies as they establish and modify their rules of engagement with alliance partners. To equip member organisations for optimal performance, a collaborative logistics network must support meaningful collaboration between participants as they move through five relevant areas of process flow:• Information: Logistics is an information

business. While shippers have become accustomed to sharing forecast information with their suppliers, they have not considered sharing forecast information with their logistics service providers. Access to information in advance allows better synchronisation of the logistics service supply chain with the product pipeline. In addition, information drives the remaining four areas of the process flow.

• Products: Increased visibility helps members to solve asset redistribution problems, develop accurate raw material supply forecasts, and drive down costs.

• Assets: Collaborative Logistics allows members to reduce expenses by sharing logistics services assets such as a truck, trailer, warehouse, or container.

• Documents: The logistics process is driven by required documentation, from domestic bills of lading to international letters of credit. Each member in a collaborative logistics network must have access to documents to enable synchronisation with real-time process

flows. Furthermore, each member must be able to modify these documents for real-time synchronisation.

• Capital: Electronic payment is a critical component of any collaborative logistics network. Results may include improved working capital, increased asset utilisation, and enhanced profitability.

BEGINNING OF A NEW ERAThe need to work closely with other organisations is rapidly gaining acceptance. Although some organisations may find it challenging to meaningfully buy into the idea of collaborating with customers, suppliers, and even competitors, many are quickly adopting changes to accomplish this objective. Considering the imperative on creating value for the end-user customer or consumer, the need for collaborative relationships cannot be overstated.

In essence, the benefits of collaboration occur when companies work together for mutual benefit. As collaborative efforts gain momentum, and as collaborative logistics is recognised as a strategic priority, participating companies will be well-positioned to reinforce their core competencies. With the Internet’s capacity to connect individuals and networks, a huge barrier to collaboration has been removed. Much of the remaining barriers are psychological, and those who are not willing to transcend outmoded practices will be left behind as the rest of the world joins together for mutual benefit.

Here’s presenting you the SMART LOGISTICS Leadership Series, which will not only provide practical solutions to form strategic alliances with your competitors, suppliers or customers, but will also present successful case studies for others to follow. Join us on October 22, 2010 in Mumbai. Don’t miss it if you want to be a part of this change!

Dr C John Langley, Professor – SCM, Georgia Institute of Technology

Mutual benefit And sustainable

development is the essence of

collaborative partnership


SMART STRATEGIES DISTRIBUTION MANAGEMENT

A product is physically visible to the customer only when it reaches the store shelf. The effectiveness of the various processes involved in making a product reach the shelf at the perfect time depends on the distribution strategy deployed at the back-end. In India, customers’ preferences change with the geographical as well as cultural diversity. To meet the ever-changing and multiple demands, logistics companies need to figure out the perfect distribution strategy, which will not only make its product highly visible at the store but also make it reachable to the vast customer base at their preferred location, on time.

CRITICALITY OF DISTRIBUTION NETWORKS Having a sound distribution strategy in place can significantly enhance companies’ reach to target customers. Elaborating on the criticality of distribution of the ever-increasing range of products in the market, Professor N Viswanadham, Executive Director, Centre for Global Logistics and Manufacturing Strategies, ISB, says, “The logistics real estate segment is undergoing a revolution, due to the emergence of office space, malls, super markets, etc in big cities as well as in tier II and tier III cities. Manufacturing and service industries are being encouraged to move to tier

II and tier III cities, creating a demand for business services and organised retail in these locations. The distribution centres provide the crucial link between producers and retailers. They are important subsystems in the supply chain network and their location is critical for balancing the supply and demand.”

Being at the right place at the right time, with the product in demand with the right quality (size, colour and range) has become a priority for companies today. “Distribution is of paramount importance, especially for mission critical deliveries. For instance, a hot swap hard disk that needs to be replaced during a live market

Formulating a perfect distribution strategy which is flexible, and considers all intricate factors involved in management of distribution networks, can dramatically help in overcoming the many challenges that logistics companies & service providers face day in day out. A new way to look at these issues lies in planning future strategies which leverage on all the opportunities still unexplored.

SUMEDHA MAHOREY

Illustration By: Sanjay Dalvi


session, or a time definite delivery for a tender that expires at a given time are a few examples of this. Currently, the retail chain lacks the required distribution effectiveness that leads to late staging of products. Items with limited shelf life will move closer to expiry dates if staging is done late and has lesser chances of being sold, which will directly affect returns,” avers Madhu Kumar, Senior VP & Global Head – Travel, Transportation, Hospitality and Logistics Vertical (TTHL), Hexaware Technologies.

These challenges can be overcome by implementing a perfect distribution strategy. But how exactly do distribution strategies help logistics companies? When, where, how and in what quantity are the factors tackled by a logistics service provider day in & day out. The answer to all these questions lies in a perfectly balanced distribution strategy, which is based on multiple considerations. Elaborating on the same, AK Agarwal, Director, DRS Group, avers, “Distribution strategy of any logistics company should address the questions of operating control (centralised, de-centralised or shared), delivery scheme, pool point shipping, cross docking, direct store delivery, closed loop shipping, mode of transportation, ocean freight, airfreight, replenishment strategy (e.g. pull, push or hybrid) and transportation control.”

DESIGNING DISTRIBUTION STRATEGIESProper distribution management is a critical element in the success or failure of a brand. Although the word ‘distribution’ brings up images of trucks loaded with

packages, it is as much a sales and marketing issue as it is a delivery issue. Dr N Chandrasekaran, VP – Corporate Affairs, TAKE Solutions, opines, “Designing distribution networks involves strategies for ensuring that the product reaches its target market. Successful companies are known to focus on three key issues while designing their strategies – marketing/

materials management capabilities required, network design issues and facility considerations.”

Other factors counted are flow considerations like lead times, demand variability for designing a company’s market response, inventory positioning and facility strategies, which include factors such as customer service levels, transportation

costs, cost of lost sales, warehousing costs and inventory costs, all of which are critical for network design.

Equally important are the facility and ownership issues, with factors like throughput volume, demand variability, market density and reach, physical traceability and control, safety & information technology needs, which usually tops the list.

Discussing the factors affecting distribution capabilities, Dr Chandrasekaran adds, “Product characteristics and product flow requirements significantly impact the distribution capabilities and the processes required. For instance, factors such as product value, durability, temperature sensitivity, obsolescence and volume,

How to make distribution strategies more effective?• Establish different distribution channels for different products• Utilise multiple channels including direct or semi-direct sales due

to concerns about erosion of distributor loyalty or inter channel cannibalisation

• Periodically re-visit and update distribution strategies• Enter into a partnership with a well-established transporter having a

wide network• Ensure that the item being dispatched has the required documentation• Plan the routes and schedule deliveries using an effective algorithm to

save on time and resources• Follow-up on deliveries and update information on the system• Make effective use of Information Technology – Process data through

XML uploads, EDI facilities or Flat file uploads to avoid manual entries and save on precious time

• Adopt sequencing and consolidation to manage scheduling and optimisation, respectively.

Benefits of an effective distribution strategyA well-planned network design can have competitive advantages that include:• Greater coverage through hierarchical structure resulting in reduced

selling prices• Reduced operational overheads through process simplification and

standardisation• Direct marketing with maximum advantage yielding expeditious

deliveries• Reduced need for capital – Just-in-time arrivals can reduce capital

investments and time to market• Limited touch points leading to efficient network handling• Shorter order to cash cycle• Door-to-door coverage• Local/regional reach.

Inputs by Madhu Kumar, Senior VP & Global Head, TTHL Vertical, Hexaware Technologies

Future distribution strategies will be leveraging multiple business relationships in a dynamic ecosystem of trading and service partners. This would assume greater significance in the backdrop of globalisation as well as rural outreach. DR N CHANDRASEKARAN, VP – CORPORATE AFFAIRS, TAKE SOLUTIONS


directly depend on the product being handled.”

According to Dr Chandrasekaran, besides these technical aspects, ensuring accountability across the network is also important. The ability to identify problems that may occur due to non-delivery at an early stage of the process, and gradually eliminating them through an effective strategy has become crucial for logistics companies in this intense competitive age.

TYPES OF DISTRIBUTION STRATEGIES According to Dr Chandrasekaran, bottomline success in every business hinges on sales and delivery execution. There are various possible distribution strategies, and there are different kinds of

opportunities and challenges associated with each of these strategies.

However, fundamentally, distribution strategies are of two types – direct and multi-tiered.

In direct distribution strategy, the manufacturer ships the product directly from the manufacturing plant to the retailer/consumer. The approach is reasonable in terms of expenses and takes considerably less time. However, there are disadvantages as well, e.g. risk-pooling effects are negated and the cost of transportation increases at the manufacturer’s end.

Multi-tiered distribution, on the other hand, has many forms: • The traditional single/multi-tiered

strategy with independent or exclusive intermediaries

• The modern vertical marketing systems where producers, wholesalers and retailers act as a unified system administered by the channel leader, multi-party contracts or neutral administrators (usually providing the technology backbone for collaboration)

Adding to the list, Kumar points out three other types of strategies. Exclusive Distribution: It involves limiting the distribution to only one intermediary in the territory. This is a dedicated service for just-in-time (JIT) or time definite deliveries. The disadvantage of this strategy is that it is suitable for high-price, high-margin and low-volume products and that it depends on one dealer in each market. This strategy helps in maximising control over service level, enhancing product image, promoting dealer loyalty, better inventory, forecasting and merchandising control. It also restricts re-sellers from carrying competing brands. Intensive distribution: Effecting distribution from as many outlets as possible to service the customers’ request

to beat stock-out situations and provide location convenience, e.g. newspapers, fast moving consumer goods in the news stand, etc. Advantages of this model include increased sales, wider customer recognition and impulse buying, while the downside includes its use for low-cost, low-margin products requiring fast turnover and difficulty to control large number of retailers.Selective distribution: This suggests appointing several distributors but not all retailers. The advantages of this system include better market coverage than exclusive distribution, more control and less cost than intensive distribution, concentration of effort on few product lines as well as selected firms capable of handling complete product line and service. In contrast, the disadvantages of this approach include difficulty in selecting vendors that meet all criteria and partial market coverage.

TECHNOLOGY IN DISTRIBUTION MANAGEMENTIn a fast-paced competitive business, turnaround time plays an important role

with regard to customer service. This results in a faster order-to-cash cycle. However, a robust software is of prime importance, which reduces throughput time, ensuring delivery of correct item while the system accounts for the inventory accuracy.

Highlighting the current scenario of distribution services in India, Professor Viswanadham informs, “Currently, the distribution services sector in India is largely unorganised and lacks management skills. It has poor access to capital, fragmented supply chain and unfavourable regulations, as well as infrastructural bottlenecks in the form of lack of access to quality transport, storage facilities, etc. All these factors contribute to low productivity and poor performance.”

Overcoming these issues require taking into account certain factors, referring to which, Kumar says, “Efficient traceability, back order processing through dynamic cross-docking, effective transport planning, well-planned distribution network (network design), dynamic route planning & transport scheduling and cost reduction through consolidation should be paid maximum attention while devising the strategy. Also, reverse logistics, which requires meticulous planning, backhaul opportunity and time-phased sequencing (JIT, 4-hour TAT, etc) are the need of the hour.”

CHALLENGES IN ESTABLISHING DIFFERENT DISTRIBUTION CHANNELS FOR DIFFERENT PRODUCTSAccording to Agarwal, developing product-specific distribution strategies is key to growth of the distribution segment of logistics, which requires additional resources and infrastructure. However, logistics players are cautious when it comes to allocation of resources, since they have not yet completely recovered from the economic slowdown. With markets becoming more volatile and uncertain, it is a common experience that operating functions within companies, such as sales, marketing, distribution, logistics, production and purchase, seek to hedge their positions separately to minimise risks related to their own areas. Thus, companies resort to over-forecasting of demand, over-stocking, over-producing and over-purchasing so as to create safety nets for each function separately. Often, there comes a stage when there is a build up of unwanted inventory, which ties up

Distribution management, continued

Distribution strategy of any logistics company should address the questions of operating control, delivery scheme, pool point shipping, cross docking, direct store delivery, closed loop shipping, mode of transportation, ocean freight, airfreight, replenishment strategy and transportation control. AK AGARWAL, DIRECTOR, DRS GROUP


the working capital. Another crucial aspect that is

overlooked is the product attribute. According to Dr Chandrasekaran, product attributes impact consumption patterns, volumes and, often, consumer behaviour. A company having a product portfolio with a wide variety of products has to face a bigger challenge. Product-related issues would have a cascading effect on the network design, facilities ownership and management issues. While some companies prefer to utilise different distribution channels for different product segments, some prefer to leverage the common areas and optimise by using the same channel across different product segments. To a large extent, the choice involves trade-offs between service levels and costs, which are governed by competitive constraints. There are also cases where multiple distribution strategies for the same product are employed to cater to different customer segments. The choice of the distribution channel also impacts the margins and how they are shared across all trading partners.

RECENT TRENDS Transformation from a functional to a process-oriented organisation is crucial for the success of the supply chain concept. Highlighting this fact, Agarwal avers, “Believing this, more and more logistics players are adopting unique distribution strategies. In addition to a thorough understanding of all the basic flows of distribution functions, cross-functional collaboration is of utmost importance. Co-operation across functional and even organisational boundaries ensuring free flow is the essence of the concept of supply chain and distribution. Supply chain and distribution strategies have two major functions – physical and market interface functions. Physical functions are related to procurement, production, storage and transportation. Market interface functions

ensure that the right product is available at the right time, in the right place and in right quantity, exactly as per customers’ needs and expectations.”

Another fast-emerging trend is outsourcing, on which Dr Chandrasekaran comments, “Outsourcing, once a mere option, is now a competitive imperative for growing businesses. Increased use of shared services is a trend that continues

to become stronger – starting with the use of non-asset-based carriers, distributors and warehouse managers, to transportation brokerages.”

Further, companies have begun to recognise that the challenge of having to work in co-operation with other organisations in the distribution network reduces the risks of uncertainties, and helps in achieving a higher degree of efficiency. The interesting mix of urban and rural marketing in developing countries like India would mean that companies in India would have to excel not only in organised retail trade but also traditional multi-tiered distribution. Dr Chandrasekaran asserts, “With time, this challenge of collaboration is maturing beyond transportation and logistics, into aspects of distribution planning, execution and performance management, and across multiple partners.”

Other major trends being followed in distribution management are increased process automation within the enterprise, collaborative execution of business

transactions across trading and service partners, tracking & tracing materials as they flow through the network and, integrating the materials, information and cash flows across trading partners.

FUTURE DISTRIBUTION STRATEGIES According to Agarwal, developing innovative and in-house distribution strategies is the key to achieve excellence

in distribution and logistics. Today, with distribution networks transforming into competency networks composed of supply chain domain expertise, the focus of future distribution will increasingly be on developing a shared understanding of the business needs, managing the operational & organisational elements and delivering desired results. Supporting this fact, Dr Chandrasekharan says, “Future distribution strategies will be leveraging multiple business relationships in a dynamic ecosystem of trading and service partners. This would assume greater significance in the backdrop of globalisation as well as rural outreach. Thus, in future, the focus will be on leveraging proven solutions designed to rapidly deliver results, along with the ability to manage future change for continuous flexibility, value and success.”

Apart from this, strategic tie-ups with foreign logistics players to bring in state-of-the-art distribution strategies will be an attractive opportunity to be explored by Indian players in the near future.

When organisations agree to work together,,

synergy is the ultimate outcome

The logistics real estate segment is undergoing a revolution, due to the emergence of office space, malls, super markets, etc in big cities as well as in tier II and tier III cities. Manufacturing and service industries are being encouraged to move to these cities, creating a demand for business services and organised retail in these locations. PROFESSOR N VISWANADHAM, EXECUTIVE DIRECTOR, GLAMS, ISB

58 •58 • SMART LOGISTICS • SEPTEMBER 2010SMART LOGISTICS • SEPTEMBER 2010

CONSTANTLY changing customer preferences due to fast-changing fashion trends, introducing latest brands to market in the shortest possible time and, at the same time, ensuring customer satisfaction are some of the deciding factors for the success of any apparel company.

Knowing the criticality of this segment, the significant role of supply chain management (SCM) in streamlining the business processes cannot be undermined. Added to this is the extreme competition from global players, volatile fashion trends and market diversification, which intensify competition within the apparel chain.

The differentiating factor can be in terms of consumer perceivable attributes of apparels like design, handle, size and fit. On one hand, these parameters give the players an edge over the others, while on the other, they also present hurdles in bringing products early to the market.

Acting as a major deterrent in achieving delivery schedule and quality standards, this variability in production parameters severely impacts the marketability of a brand. This complexity can be managed by putting in place an efficient supply

chain framework. One such company that has not only managed all market pressures but also emerged as the winner among leading denim brands is Arvind Brands.

BACKGROUND Instituted in 1931, the pre-independence era, the company has grown by leaps & bounds, attaining the stature of a leading fashion apparels brand in India. With the aim of manufacturing high-end superfine fabrics, Arvind had made huge investments in sophisticated technologies. With 52,560 ring spindles, 2,552 doubling spindles and 1,122 looms, it was one of the few companies of that era to start spinning and weaving facilities in addition to full-fledged facilities for dyeing, bleaching, finishing and mercerising.

With an array of international brands like Lee, Arrow, Tommy Hilfiger, Wrangler and domestic brands like Newport, Flying Machine, Ruf n Tuf and Excalibur, the company holds a substantial marketshare in the apparel industry.

Growing up to this stature was not an easy task for the company. They had

to overcome innumerable challenges to establish such a strong brand identity. Deliberating on how enhancing the efficiency of supply chain has helped the company to create a distinct identity in such a competitive market, J Suresh, CEO, Arvind Brands, reveals, “Logistics plays a vital role for the company. As a fashion apparel brand, the need to have the right product, at the right time, at the right place and in the right quantity is an indispensable logistics challenge. Also, the cost of logistics is one of the most important parameters that can make or mar a company’s position in the market.”

Considering all these critical aspects, the company has deployed various SCM systems to not just help streamline its supply chain but also attain higher customer satisfaction. The company has many firsts to its credits. It is the first company to introduce the enterprise resource planning (ERP) and SAP business solutions in India in the retail space.

HANDLING TEXTILE INVENTORY ‘Bringing the right products at the right

With celeb brands like Lee, Ruf n Tuf & Flying Machine in its kitty, Arvind Brands has spun a success story in the nascent Indian apparel logistics industry with its highly efficient supply chain network and intelligent use of technology. Creating an example for others to follow suite, their expertise has opened up the virgin apparel logistics space for profit-making endeavours in the future.

PURNA PARMAR

LEADERSHIP SERIES ARVIND BRANDS SCM

Illustration By: Sanjay Dalvi

SEPTEMBERSEPTEMBER 2010 2010 •• SMART LOGISTICS SMART LOGISTICS • • 5959

time, at the right place and at the right price’ is precisely the logistics mantra of all retailers and apparel industry is no exception to that. Moreover, product replenishment in apparel supply chain assumes a new dimension, as global

sourcing becomes the norm of the day, with raw material supply, manufacturing, garmenting, distribution and retailing all dispersed across the globe.

While much importance has been placed on to control the ‘place’, ‘time’ and ‘price’ aspect, less effort and time has been spent on managing the ‘right product’ in an apparel supply chain. It is crucial to analyse the impact of proliferation of product mix on the operational platform in the apparel supply chain.

Terming textile logistics and SCM

as a vital part of apparel retail industry, Suresh opines, “Textile logistics needs considerable attention, particularly in reverse logistics. Often, when our stocks return from stores, we find that they are not managed in the best of conditions.

For instance, packing may be open and, at times, a garment would be dusty, stained or torn. These require extra attention so as to save on costs and time involved in replenishment. For making this happen, each inventory should be repacked and

kept in the right place again for easy access as and when required.”

Poor asset management is also one of the great concerns for apparel manufacturers and retailers. In internal supply chain, all components needed for a product should be processed together. With increased variety, the time taken for processing of individual components increases, due to an increase in lot changeover time and various downtimes

related to quality problems. This results in a higher amount of work-in-process at various stages of operation.

BEST PRACTICES ADOPTEDHaving mastered the art of inventory management, the company is now working on to create a seamless supply

chain network by adopting best-in-class practices. Detailing the best practices followed by the company to ensure higher customer satisfaction and cost-effective logistics, Suresh avers, “We have deployed a centralised warehousing system, which provides us with a greater and a transparent supply chain functioning. Also, to ensure most appropriate management of stocks in the warehouse, we have implemented warehouse management system (WMS). This provides accurate information on the exact location of the stock. It also helps determine the fill rates and picks up the stocks systematically.”

Another crucial aspect, according to Suresh, is planning of the store. The company has used a planogram to effectively utilise the store space. A planogram enables the retailers to locate the position and quantity of products in a shelving unit. “This system has helped us analyse sales patterns, as it is a scientific method. Depending on the data given by the planogram, we can refurbish the exact amount of stock.” The system also helps to create an optimal visual product placement and optimal commercial product placement.

While the company does not demand for installation of forecasting tools, plans are in place to have this system installed in all its stores in the coming years. Moreover, the planogram installed in their stores also helps them to analyse the store sales trends, which further helps determine the products that are selling well and those that need to be replaced.

Logistics plays a vital role for the company. As a fashion apparel brand, the need to have the right product, at the right time, at the right place and in the right quantity is an indispensable logistics challenge. Also, the cost of logistics is one of the most important parameters that can make or mar a company’s position in the market. J SURESH, CEO, ARVIND BRANDS

60 •60 • SMART LOGISTICS • SEPTEMBER 2010SMART LOGISTICS • SEPTEMBER 2010

ENSURING CUSTOMER SATISFACTION For apparel manufacturers and retailers, customer is the king. Companies have to make significant efforts to retain their customers. Elaborating on the SCM systems deployed by the company for ensuring customer satisfaction, Suresh informs, “Recently, for one of our premium brands Arrow, we have started an extended supply chain facility. For instance, if a customer likes a particular product, e.g. a shirt, and the required size or colour is not available in the store, we ensure that the said product reaches the customer within seven working days without any additional cost to the customer. Thus, we are now slowly expanding into home delivery of products, which is a different segment altogether.”

In today’s competitive environment, most importantly, retailers have to realise that they should focus on the entire supply chain, and not only purchasing and selling. This is because if a manufacturer is unable to deliver the goods at an agreed point of time, delays run through the entire supply chain up to the end customer, whose satisfaction is the highest priority. Based on

the given configuration of apparel supply chain, the retailer has little possibility to exercise control in this process.

Highlighting the measures taken to ensure customer satisfaction, Suresh adds, “The planogram as well as store service index (SSI) are installed to provide maximum customer satisfaction. It helps us identify the stocks that are more than 3-6 months old in the store to enable easy identification and replacement of such stocks.”

THIRD PARTY LOGISTICS AND INFRASTRUCTUREThird party logistics in the Indian retail is mainly spearheaded by fast moving consumer goods (FMCG) companies. However, according to Suresh, there is an immense scope of growth for apparel third party logistics companies. “Having an expert third party logistics company is always a positive point, as it will always make use of cutting-edge technology and latest practices in logistics. Further, we will able to put in more efforts on product development and retailing. In contrast, in the Indian apparel industry, only a few third party logistics companies are involved. The reason behind this is its slow pace of growth. India thus, needs

some more time to put in place a proper apparel logistics.”

For developing a seamless SCM, India needs to have a strong infrastructure in place. There is a need for proper transport facilities, especially roads, as this would help in accelerating the logistics process. Suresh opines, “The most important need at present is consolidated warehousing, and that too at a single location. Also, if possible, there should be one more distribution centre in the north, as there is a critical demand of goods in the northern parts of the country but due to poor distribution channels, it becomes difficult to reach customers there. Given the current scale of operations, our first priority would be to limit the number of warehousing locations.”

LOOKING AHEADAccording to Suresh, apparel logistics has immense potential for growth in the Indian retail market. “I think, it is a fabulous opportunity for logistics companies if they develop expertise in handling apparel logistics. It is a huge opportunity for growth, as it is a completely virgin market unlike the FMCG industry. Moreover, Indian retail sector is growing at a rapid pace; hence, apparel logistics has tremendous scope for growth in retail.”

Arvind Brands SCM, continued

Competencies are created when

collaborative activities take place

Agenda

Exploring The Potential Of Competitive Collaboration | Initiating & Developing Trust In Relationships | Overcoming Common Obstacles

Invest your time to participate as an evolved speaker or an involved participant and get enriched.

Jasjit Sethi, CEO, TCI Supply Chain SolutionsAnshuman Singh, MD & CEO, Future Supply Chain Solutions Vivek Sarbhai, VP, Logistics & Customer Operations, Cadbury IndiaJuzar Mustan, CEO, AFL LogisticsAnil Khanna, MD, Blue Dart ExpressN Sukumar, Sr VP, Supply Chain, Reliance IndustriesProf N Viswanadham, Executive Director, Centre For Global Logistics & Manufacturing Strategies, Indian School Of BusinessHoward James-Scott, Chief, SCM, GATI

Lloyd Sanford, President, Marketing & Commercial, Vikram LogisticsArif Siddiqui, Director, Coign ConsultingBala Irulandy, Operations Director, HCL TechnologiesSriram Venkateswaran, Director, National Supply Chain & QA, Hardcastle Restaurants (McDonalds India)Yogesh R Antad, GM, Supply Chain Functional Excellence, Cummins IndiaOscar de Bok, SVP South Asia & Indo China, DHL Supply ChainPranil Vadgama, President, CHEP India

Panel Of Speakers

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AS companies continue to look for new ways to squeeze excess costs from their supply chains, moving some or all of their business operations overseas is an ever-growing practice. Foreign markets can offer cost-effective supply chain and logistics solutions for companies trying to save costs by manufacturing, importing, exporting and/or distributing in other cheaper locations.

WHY CHINA?China continues to be a supply chain hotspot for many companies who want to expand their global business operations. A key reason for this growth is that China continues to be a vital supply point and economic hub of global commerce, with business volumes on a steady incline. As a result, the country is improving and expanding infrastructure, diversifying & amplifying supply chain service offerings as well as implementing new custom policies

to better accommodate the companies making this shift.

In particular, China’s warehouse solutions are appealing because they allow companies to consolidate orders from multiple vendors and ship directly to end customers, bypassing more costly distribution networks in other regions of the world, e.g. North America and Europe. Moreover, since a majority of companies are already doing some kind of business in or with China, pursuing a warehouse solution in China can be a logical next step.

HOW WAREHOUSING WORKS IN CHINA?Companies that manufacture goods in China must be registered to produce for export or domestic consumption. In order to gain domestic distribution rights in China, they must operate legally within the Wholly Foreign Owned Enterprise

(WFOE) framework, which is increasingly becoming easier due to the relaxation in government regulations made possible as China entered the World Trade Organization (WTO). After a company has met the legal requirements to manufacture in and distribute from China, the next step is selecting the right programme and type of warehouse.

Warehouse consolidation programmes in China take on many shapes. There are single importer/multiple vendor consolidation programmes, multiple importer/multiple vendor consolidation programmes and direct import programmes that are not specifically built around consolidation, but are more about shipping products directly from origin to end customers (Figures 1, 2 and 3). These models are ideal for vendors located in the same country, as is the warehouse. If vendors are located in a different country than where the warehouse is, these options

WAREHOUSING & DC WAREHOUSING & DC WAREHOUSING IN CHINAWAREHOUSING IN CHINA

SEPTEMBER 2010 2010 • SMART LOGISTICS SMART LOGISTICS • 63

A SMART MOVE SPEARHEADING THE GROWTH MOMENTUM?

Companies are continuously on the lookout for ways to cut costs from their supply chains by shipping directly to end customers. China, due to more flexible customs policies, is the frontrunner in grabbing this opportunity by allowing companies to bypass the costly distribution networks en route – making most companies flock towards China to utilise these strategies to their advantage. Looking at all these strategic factors, pursuing a warehouse solution in China may be a smart move for many companies looking to boost the efficiency of their global supply chains.

could have a reverse effect and result in an increase in the transportation costs.

These programmes have a variety of warehouse options that companies can use to consolidate orders (Figure 4). The options are numerous and vary for different industries, commodities and market channels. In each type of warehouse, the balance of inventory, warehousing, customer service and freight costs will be different and determined by the characteristics of the commodity as well as demand.

Depending on the type of warehouse solution a company desires, they must

perform with diligence and carefully consider each programme and type of warehouse to ensure selecting a solution that best aligns with their global supply chain strategies and goals.

EXPLORING THE BENEFITSWhile pursuing warehouse opportunities in China helps companies streamline their global supply chains, improve efficiencies and reduce costs, there are many additional benefits. A well-executed and well-managed warehouse solution in China can help companies: • Distribute their product directly from

China to end customers and avoid more expensive distribution networks, e.g. North America or Europe

• Choose from multiple warehouse options due to more flexible customs policies in China

• Gain transparency over end-to-end supply chain spending and reduce transportation costs

• Improve cash flow• Gain extended visibility for earlier

decision-making, risk prevention and security control

• Maintain control over shipments post-production

• Relieve pressure on the destination’s distribution network

• Improve vendor management and compliance

• Pursue new sales and branding opportunities in other global markets.

BOTTLENECKSWhile the benefits of a warehouse solution in China make it a viable opportunity for many companies, it is important to weigh them against the potential challenges.Lack of technology solutions: Many warehouse providers in China hesitate to invest in costly IT platforms because

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Access to local Chinese Market

Labour cost savings

Access to Asian markets

Strategic move against key global competitors

Material cost savings

Access to talents/quality labour

Utility cost savings

Key Motives for Establishing a Manufacturing Base in China


they operate on a build-to-order basis. While most welcome customer-owned platforms and take steps to install and utilise them, some offer only simplistic platforms. This can severely limit the company’s visibility to their supply chain, which is essential to successfully managing overseas operations.Limited commodity expertise: Some local warehouse providers have expertise in handling only specific commodity types, such as electronics, garments and houseware. As a result, they may lack experience in working with a wide variety of industry verticals.Longer lead times: Warehousing overseas requires extra lead time. For example, pulling from a North American inventory may require only a few days of lead time, but pulling from inventory in China could require a week or more. This adjustment can be difficult for many companies and create delivery delays for their end customers.Local customs relationships: If a company has strong local relationships with specific Chinese customs officials, they may opt to maintain those relationships instead of moving locations or pursuing a new warehouse solution for their export customs clearance.Increased inventory costs: Depending on terms of sale, there is a potential that end customers will end up carrying inventory

for longer periods of time, which could lead to excess costs.Ownership of inventory stored overseas: Companies that own inventory and store it overseas can be exposed to income

taxes in the country where their inventory is stored. In addition, companies may be exposed to other taxes, such as customs duties or value added tax (VAT). Before storing inventory overseas, companies should speak with their tax advisors to discuss potential risks and consequences involved.

KEYS TO A SUCCESSFUL CHINA WAREHOUSE IMPLEMENTATIONExplore and understand your options As China continues to expand its supply chain services and implement new custom rules and regulations, the number of viable warehousing solutions and their specific capabilities continue to increase. In order to determine the best fit, companies need to understand their options (Figures 1-4), and how each solution would impact their global supply chains. Some considerations that should factor into a company’s warehouse selection include:• Tax rebate implications• Ownership of inventory• Insurance coverage• Customs formalities• Complexity of operations within the

warehouse• Technology capabilities• Unit level cost.

Warehousing in China, continued

Figure 2: Multiple importer/multiple vendor consolidation

BenefitsFor small importers pooling together and dictating the load plan:• Increase efficiencies, security, and

information visibility control• Improve quality assurance• Allow smaller purchases of single items,

which reduces inventory• Reduce costs for consignees• Improve cash flow (depending on trade

terms)• Reduce lead times• Enable shipping immediately upon arrival at

the warehouse due to pre-finishing options at origin

For general consolidation where importers do not know each other and the consolidator dictates the load plan:• Increase efficiencies, security, and

information visibility control• Improve quality assurance• Reduce costs for consignees• Eliminate warehouse and labour costs at

destination due to pre-finishing options at origin.

Figure 1: Single importer/multiple vendor consolidation

Benefits• Increase efficiencies, security, and

information visibility control• Improve quality assurance• Allow smaller purchases of single items,

which reduces inventory• Accelerate and enhance order fulfillment for

better on time performance, compressed ordering cycles, and reduced cancellations

• Minimise domestic inventory, shipping costs, and destination handling costs

• Improve cash flow (depending on trade terms)

• Reduce lead times• Gain flexibility with more distribution

options• Improve cross-docking efficiencies and

reduce dock congestion• Enable shipping immediately upon arrival at

the warehouse due to pre-finishing options at origin.

SEPTEMBER 2010 2010 • SMART LOGISTICS SMART LOGISTICS • 65

Managing logistics operations from a third-party location is complex; hence, it is imperative to select the right warehouse solution from the beginning. When companies switch between different warehouse solutions, they typically accrue many additional costs. These costs can be avoided by developing a long-term, steady relationship with a single warehouse provider.Build a strong relationship with the warehouse provider: To successfully manage a warehouse solution, it is important to build a strong relationship with a reliable warehouse provider. Establishing trust, keeping communication lines open and ensuring a clear,mutual understanding of processes,goals and desired outcomes will ensure that companies maintain visibility and control over their global warehouse operations.Have a local presence: Having local employees dedicated to a company’s warehouse activities in China is a distinct advantage. Local resources are invaluable because they can identify and develop

solutions within the local market, solve potential supply chain problems and help companies manage their global operations with ease. Because the regulatory environment in China is dynamic, having local resources that can help companies adapt their processes accordingly is a critical factor to the success of any warehouse solution.Utilise an electronic communication process: Visibility is essential when companies are conducting business in multiple markets across the world. Electronic connectivity capabilities, like Electronic Data Interchange (EDI), allow companies to connect with their warehouse, integrate their technology systems and gain complete visibility to their day-to-day operations, data and processes. In addition, EDI can make a company more efficient by reducing costs and environmental impacts If the warehouse does not have these capabilities, it is important todiscuss if they wish to invest in the technology necessary to support the company’s goals.

THE GLOBAL 3PL ADVANTAGEA number of companies are implementing successful warehouse solutions in China by outsourcing services to a global forwarding provider or third party logistics (3PL) company to help them establish, execute and facilitate their outsourced warehouse solution. In 2008, AMR Research found that over 90 per cent of the companies surveyed relied on outsourced providers (3PLs, freight forwarders, customs brokers) to execute their global logistics.

However, before selecting a provider, it is important to ensure that they meet the following requirements:• Strong local market presence in China,

including strategic office locations in key manufacturing regions, local onsite employees and pre-established relationships with warehouse providers in China

• Large, global network of logistics options, including freight services and outsourcing solutions

• The ability to provide flexible warehouse solutions in China as well as North America, Europe and other key economic hotspots

• Non-asset based business model with the flexibility to provide the best resources to meet a company’s specific needs in China and other regions of the world

• Cutting-edge technology to provide full visibility, electronic connectivity, supply chain analysis & reporting tools, return on investment (ROI) measurement and process improvements

• Thorough understanding of the customs regulations, laws, language and business culture in China.

IS WAREHOUSING IN CHINA RIGHT FOR COMPANIES?Pursuing a warehouse solution in China may be a smart move for many companies looking to boost the efficiency of their global supply chains. The benefits add up to lower costs, direct shipping to end customers, better visibility and opportunities to infiltrate new global markets, etc. However, before taking the step, companies should carefully consider all the options and resources available to ensure finding, implementing and execution of the right warehouse solution.

Courtesy: CH Robinson Worldwide, Inc.

Figure 3: Direct import consolidation

Benefits• Reduce lead time• Improve customer service• Increase speed to market

Types of warehouse options in China

Export Processing Zone (EPZ): Industrial park designated by the government to provide tax and other incentives to exporters.

Free Trade Zone (FTZ): Special commercial and industrial area in or near ports of entry where foreign and domestic goods may be brought in without being subject to payment of customs duties.

Public Warehouse: A warehouse subject to government regulation where a number of different companies can store goods.

Bonded Warehouse: A warehouse where goods are stored under the direct or indirect supervision of a country’s import or export authorities.

Bonded Logistics Parks (BLP): BLPs consolidate shipments and implement direct import programmes acting as a specially designated zone.


PRODUCT & ADVERTISERS’ INDEX

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ADEA - Automotive Dealership Excellence Awards ............................. 9

Cold form C & Z purlins ......................................................................................... 7

Commercial bonded warehousing ................................................Back cover

Commercial documentation ..............................................................Back cover

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

Custom clearance .......................................................................................................23

DHL import express worldwide ................................... Front inside cover

Domestic after-market service & spares logistics .................Back cover

Engineering Expo exhibition ................................................................................... 4

Entrepreneur magazine ............................................................................................41

Freight forwarding .......................................................................................................23

Heavy industrial steel buildings ............................................................................. 7

International trade ...................................................................................Back cover

IT asset management .............................................................................Back cover

Knowledge process outsourcing .....................................................Back cover

Multi-level car parks ..................................................................................................... 7

ODC transportation ..................................................................................................23

Polycarbonate sheets .................................................................................................. 7

Pre-engineered steel buildings ............................................................................... 7

Prefab shelters ................................................................................................................. 7

Project transportation ...............................................................................................23

Residential steel houses ............................................................................................ 7

Roof vents ......................................................................................................................... 7

Roofing & cladding sheets ....................................................................................... 7

Self-adhesive tapes .....................................................................................................29

Smart logistics leadership series .........................................................................61

Structural floor decking sheets ............................................................................. 7

Taxation regulatory compliance

under export promotion schemes ...............................................Back cover

USS univents .................................................................................................................... 7

Ventilators ........................................................................................................................29

Warehousing ..................................................................................................................23

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

Products Pg No Products Pg No

Our consistent advertisers

Pg No Advertiser Tel. No. E-Mail Website

9 ADEA-Automotive Dealership Excellence Awards +91-22-30034650 [email protected] www.adea.in

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

4 Engineering Expo +91-09819430607 [email protected] www.engg-expo.com

41 Entrepreneur Magazine +91-9819264108 [email protected] www.entrepreneurindia.in

BC M&M Connect Advertising&Promotions +91-80-40824600 [email protected] www.indelox.com

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

61 Smart Logistics Leadership Series +91-22-30034650 [email protected] –

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

7 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

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

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ADEA-Automotive Dealership

Excellence Awards

DHL Express (India) Pvt Ltd

Engineering Expo

Entrepreneur Magazine

M&M Connect Advertising&Promotions

MFC Transport Pvt Ltd.

Smart Logistics Leadership Series

Sreelakshmi Traders

United Steel & Structurals Pvt. Ltd

Vijay Logistics Pvt Ltd

VRL Logistics Ltd

ADVERTISERS’ INQUIRY FORM

ADEA

Automotive Dealership Excellence Awards

Cold form C & Z purlins

Commercial bonded warehousing

Commercial documentation

Containerised transportation

Custom clearance

DHL import express worldwide

Domestic after-market service &spares logistics

Engineering Expo exhibition

Entrepreneur magazine

Freight forwarding

Heavy industrial steel buildings

International trade

IT asset management

Knowledge process outsourcing

Multi-level car parks

ODC transportation

Polycarbonate sheets

Pre-engineered steel buildings

Prefab shelters

Project transportation

Residential steel houses

Roof vents

Roofing & cladding sheets

Self-adhesive tapes

Smart logistics leadership series

Structural floor decking sheets

Taxation regulatory complianceunder export promotion schemes

USS univents

Ventilators

Warehousing

Warehouses

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