cover story

Next GeNeratioN
SuPPly ChainS
by p. k. chatterjee

Building

Indian logistics and supply chain sector has been growing at a rapid pace to cope up with the users demands. However, a major chunk of the sector is operating in an unorganized manner, which lacks transparency and visibility. The sector has to be much more efficient to cope up with the load in the coming days. Besides infrastructure, to be competent it has to develop skilled workforce and embrace information technology (IT) as an enabler.

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Q&A

recent news has shaken all the sensible citizens of the countryas they shockingly noted that 17.8 million tonnes of food grains are being stored under tarpaulin across India. Out of that, around 10 million tonnes have undergone at least one monsoon, at risk of rotting. Also, 49, 000 tonnes of this is ready to be destroyed in Punjab as that have not been utilised for three monsoons. The finance and food ministries are reluctant to spend an estimated Rs. 5,000 crore on distribution. Although, critics may call it an example of inefficiency of the administrative machinery, it definitely pinpoints the pathetic condition of our supply chain. The Indian logistics sector reached US$75.19 billion in 2009. Last year, ASSOCHAM predicted this would become a $125 billion industry by the current year 2010. Also, a recent media report communicates that it has grown to an estimated size of $130 billion at present. All these put together suggest that the growth

wheel of the sector is on top gear. But are we truly in a position to sustain this growth momentum? How is the scenario at present? Where are we leading to? The scenario described above is a completely demand-driven growth. If we look at the supply side, the structure of the sector is totally fragmented. Many service providers operate with limited capability (often with even less than five trucks), mostly on thumb rule with limited visibility of operations and within a regional patch as their functional area. When it comes to the question of warehousingwe are still far off from adequate space capacity with all-round modern facilities. This leads to delay, causes escalation of transportation charges, increases loss in transit, hinders seamless cross-country operations, and most importantly lacks service accountability. In its true sense, today the Indian Logistics and Supply Chain sector is in a state of total mess, although often it is communicated in a nicely wrapped way saying the sector is in its nascent stage.

InclInIng towards more utIlIzatIon of raIlways

Q: What are the present trends that you are finding in the Indian SC & Logistics industry? a: increasing shift towards rail transportation by both service providers and endusers is noticeable these days. Then there is growing share of international logistics solutions due to increasing EXiM activity of india. also, consignment tracking feature has become a default expectation from end-users. Q: What are the areas that need to be addressed very urgently? a: Transport infrastructure congestion is the most significant concern for both service providers and end-users, especially at major ports and the poor hinterland connectivity of ports. affordable climate controlled warehousing facilities in town and rural areas are an urgent need from perspective of agriculture sector and food industryto reduce or eliminate the massive losses in the form of food grains wastage. lack of recognized industry status is the primary concern for organized transport service providers, and is a deterrent for full fledged entry of MnCs and large industrial groups into logistics sector. Q: What volume of investment is required to improve the situation? a: Estimates for investments needed to improve the situation are not available from any credible sources, but budgeted figures of ongoing development plans for various parts of the infrastructure sector such as ports, highways, dedicated freight corridors of railways, etc., indicate that the requirement would be almost or over a hundred thousand crores of rupees. Q: What kind of steps are necessary to change the fragmented structure of the industry? How is the move in that direction? a: logistics industry (especially the road transportation segment) needs to be awarded a formal recognized and regulated industry status, however, there is no notable move in this direction yet. in the infrastructure sector, regulations need to be eased to facilitate greater par-

aNaNd raNGachary Managing Director Frost & sullivan, inDia

ticipation of private sector in development and management of the operations. There is some notable progress in this area with permitting private ports development, and the recent announcement indicating permission for development of private sector built and operated railway lines in the country. Tax inconsistency across states had been a concern for most industries impacting the logistics practices, however the upcoming gST implementation is expected to address this to a large extent.

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It is true that in the last six decades, we have not been able to develop our road infrastructure to the adequate extent, even today inaccessibility, poor accessibility and seasonal isolation are the very common features in the Indian roadmap, however, is that all? Obviously, road infrastructure shortcoming is one of the major issues; several measures are being taken to overcome those. The time has come when we need to put a deep thought on the other issues along with the road infrastructure. And it is a good sign that already many of the field experts have started thinking over those seriously. many a company has been making efforts to reach the end-user directly. While in this competitive situation, maintaining brand name is a tough task, every manufacturer is looking for a supply chain partner who can serve him beyond just delivering his goods to the final destination. Need for product servicing, replacement, spare parts supply etc., are growing fast, which are calling for high efficiency in reverse logistics and strategic warehousing too. Thus, each supply chain needs to be reoriented in a customercentric, value-added fashion. Wherein comes up the question of capability. On the top of the list of the emerging challenges in this field there is tremendous shortage of skill at all levels. A recent FICCI study report has pointed out, Considering the strong policy measures taken by the Government, to promote investments in the entire value chain, demands for logistics & supply chain managers, retail managers will go up significantly, and meeting this demand would be challenging for the industry. According to FICCI estimate, as reported in the study entitledRising Skill Demand: A Major Challenge for Indian Food Industry, A huge demand for supply chain and logistics professionals

existing challenges

The fragmented structure of the Indian logistics sector has kept it far from uniformly delivering the optimized service. When a manufacturer or distributor looks for a logistics service provider, so far his priority was cost saving, however, at the nonce the paradigm is shifting towards partnering with the organization that can seamlessly deliver his goods to the point nearest to the consumer. So that he can better concentrate on his core business. In fact,

Q&A

treatIng logIstIcs and sc as a key strategIc Input for plannIng

Q: What are the steps being taken by the progressive Indian logistics companies to develop efficient manpower? a: logistics is a manpower intensive sector and sustained availability of trained and skilled manpower is the key to the overall growth and efficiency of this sector. logistics companies now are also focusing on improving specific skill sets of employees through regular training sessions which include in-depth training on dg for instance and on soft skills. deployment of technology does help addressing the challenges of manpower in many ways. Technology adoption in the logistics industry has been of a very high order and continues to be so. logistics companies are investing in handle Scanners, PdF Scanners and Wearable Computers with Wireless lan enabled hubs and warehouses. gPRS-based mobility solutions, gPS location based tracking and Remote or iP surveillance are also widely deployed. and transparency, companies are able to develop efficient manpower. Q: How can the 3PL users contribute to the development of the Indian logistics sector? a: My view is that changes in the supply chain are driven by business demands i.e., supply chain does not drive the business but the businesses drive the supply chain. Businesses will adapt to changing global and country environmentwhether it is related to demand-supply or regulatory. We have seen that during the recession phase last year, many companies started to tweak their supply chain models to address the dramatic see-saw changes in business needs. The impending gST change would certainly once again fuel the way business is managed in india and supply chain will also need to adapt to these changing requirements. Manufacturing organizations are focusing on being nimbleable to adapt

SaNjiv Kathuria country-sales & Marketing Director, tnt inDia

in essence, by leveraging these technologies, which are helping minimize errors, reduce time and costs through real time updation for better visibility

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is also expected in the sector, which will be around 8, 28, 366 in 2010 and approx 9, 03, 672 professionals by 2015 (50 per cent increase in demand in 2010 and 63.50 per cent by 2015). To provide a seamless service, multi-modal transport capability is absolutely essential. However, in the Indian scenario, very few service providers have been so far successfully able to establish such capability. Our waterways and railways are yet under utilized. As far as railways are concerned, loading and unloading facilities, especially for containers are still absent in many points of strategic importance. Similar problems are existing in many seaports and airports. Coming back to road infrastructure, absence of dedicated freight corridors is posing a big challenge, as moving goods from ports take a longer time. Longer the transportation time, more is the product cost. Also, it increases dilatory damage of goods along with other risks. Indian food and pharmaceutical industries are growing at a huge pace, but the industry is facing tremendous problem because of inadequate cold chain service, and this is going to increase fast.

Also, we need to build at least 25-30 million sq.ft of additional warehousing space every year, in addition to our 1,800 million sq feet of warehousing space today. However, it is a pity that our focus is too little in this direction. Optimization of the existing warehouses can create a huge space, however, that needs deployment of right technologies in right ways. In the existing scenario of fragmented structure, although we often talk about complete visibility of the supply chains, those who are still depending on below optimum fleet sizes can never achieve that as the cost structure does not make it beneficial. Also, the comparatively large fleet operators or contractors are often hesitant to accept IT as an enabler and not just as a cost burden. Moreover, we are not in a position to implement Green logistics in its true sense, till we integrate and optimize all the moves of carriers, operations of warehouses and ease the formalities. Return of empty or partially loaded vehicles is a common occurrence in India. A truck often needs to waste four/five days to cross a state border. Unless there is a procedural

to changes quicker, open to outsourcing, willing to tweak their existing supply chains and most importantly treat logistics and supply chain as a key strategic input in their planning process. Even today most users tend to focus on the transportation cost as the key KPi. There is a need for a paradigm shift in thinking amongst manufacturing organizationsto start thinking beyond transportation to other aspects like inventory carrying cost, speed to market and opportunity cost analysis. Q: How are the 3PL service providers gearing up to serve reverse logistics (RL)? a: Reverse logistics is an integral part of products life cycle. Supply chain managers are using reverse logistics to better manage inventory. 3Pls and companies like TnT offer a single window solution for product companies. With integrated network of CS- Call centre operation and logistics network, TnT and 3Pl are providing seamless solution of product exchange, swap and defective return to bench. For the customer, it is a dream solution to be in touch with the client and also have full control of defective inventory without inventory loss or shrinkage.

With effective Rl and defective management, companies save significant capital towards purchase of new inventory. TnT has been one of the few pioneers in india in Reverse logistics management and offers express and consolidation reverse logistics model. Q: Do you feel that GST will be a game changer for the Indian logistics sector? a: gST will have a significant impact on the indian industry with many implications for their supply chain and logistics strategy. For instance, the abolishment of area based advantages will trigger the emergence of new routes and new hubs. lesser storage locations will result in increased transportation in perhaps bigger sized trucks with consequential effect on the logistics industry. gST will largely reduce a lot of paper work and enable seamless movement of material across the country. There is also likely to be consolidation in the industry with large MnC players aggressively investing in india. advent of gST will ensure seamless movement without hassles of elaborate paperwork enabling the global players to bring in best practiceswhich

will result in the faster growth of pan-india players rather than regional/ niche service providers. The demand for reliable logistics solutions would see a big increase. Q: How will the integrated network help the companies? a: integrated networks offer seamless domestic and international transportation and distribution networks coupled with a choice of transit times i.e Express, Economy and Time definite. This along with value added services at point of consolidation and point of break bulk enable companies to work with large supplier base across large geography and distribution to large customers base / point of use across any other international geography. Companies like TnT offer in-built value adds like technology for single and master consignment, single platform for product visibility irrespective of domestic or international movements, first and last mile visibility, MiT, kiting and de-kiting, labeling and faster destination customs clearance. With availability of integrated networks, companies conduct business engagement across the globe seamlessly.

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change towards simplification, how can we think of optimizing the overall supply chain, based on which the manufacturers can confidently run their just-intime production systems? There are many other problems too. However, of late a big shift in paradigm among the drivers and thought leaders of the industry is quite noticeable. The Indian logistics honchos are now attempting to overcome the existing shortcomings through innovations and application of technologies. They are also seriously considering the possibilities of collaborative approaches.

future course

Some of the Governments efforts and new plans, if executed properly, will solve the problems to a great extent, however, project completion has to happen within the scheduled time frame, which is very rare in India as far as such projects are concerned. It has now been well understood that there is no alternative to public-private participation in developing infrastructure fast. However, both the logistics users and service providers are supposed to pressurize the Government for finishing the infrastructure projects in hand.

Q&A

achIevIng desIred professIonalIsm

Q: What kind of action is essential to attract people in our logistics sector? a: Truck drivers and even traditional transporters are not given due respect in our industry and the society as a whole. They should get their due respect like in the uS and Europewhere a truck driver is not merely a driver but a traffic coordinator and cargo manager from loading till the delivery point(s). To raise the living standards of people in this sector, we desperately need a joint-initiative of government and industry to support the cause. We require specific institutions in place for imparting basic apprentice training and higher education, and to develop customized multi-skills related to logistic fields. This will surely help the industry and the people in achieving desired professionalism and expertise, thus enable them earn their due share of respect. To initiate with, a system, similar to the way other industries take apprentices under 1961 act, can be devised and implemented. Further, faith in field staff which is the most important emotional enabler and intangible motivator is lacking in logistics trade, this needs to be resurrected. Q: How can innovations help in improving our supply chains? a: i strongly feel Kaizens and out of box initiatives are the best possible inspirational bets in a slow developing and less supportive infrastructural base. despite constraints and limitations, there is lot

with instructions to deposit the same at designated PCOs. an advance cash account arrangement was made with respective PCOs inchargewho in turn were instructed to pay Rs.50/- each to the drivers against receipt of cards in stipulated time. PCOs in-charge in turn would timely inform us the transit status. This direct incentive Scheme worked well for us till 2007, thereby ensuring timely deliveries of our raw materials and parts in containers. Q: How can the service users influence the efficiency of the service providers? a: Since end-user is interested in secondary and related logistics consolidation or integration outsourcing end-to-end solution, he or she can clearly set the performance parameters. While framing the contract, these clauses can be incorporated in the agreement with the service providers. Further being cash rich, more organized and customised OEMs can give assured businessenabling lSPs to have efficient business models mutually beneficial for both. Q: How should we initiate changes in the logistics and SC field in our country? a: We have to follow a collaborative approach. OEMs and lSPs have to jointly push the government to introduce favourable policies and systems in order to improve infrastructure and facilitate professional institutions. Further, they have to come together and duly support each other with cost effective, efficient and mutually beneficial business models. This will enable win-win for both, and ultimately benefit the economy as a whole.

r hariKumar general Manager (supply chain Division) Maruti suzuki inDia

of scope for improvement in this area. Kaizen is a very effective tool. let me narrate a case related to our organization. during nineties, the gPRS was not so prevalent in india due to the fact that it was expensive and its hardware was not so reliable as of today. after experimenting with gPRS, we introduced a systemwhich we named En route Card deposition incentive Scheme for drivers. Thereby, we set three en route transit PCO points between JnPT and gurgaon located at Vapi, ahmedabad and Jaipur. Our JnPT office was advised to issue a set of three coloured cardsRed, yellow and green for respective locations to each driver

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workIng towards ensurIng sustaInable practIces

the passenger line. This factor will have a serious impact on the sustainability of the logistics sector. ninety five per cent of the logistics sector is accounted for by the unorganized sector (such as owners of less than 5 trucks, affiliated to a broker or a transport company, small warehouse operators, customs brokers, freight forwarders, etc.), and slightly more than five per cent, (approximately) is contributed by the organized sector. Majority of the warehouses are small, outdated with only basic material handling systems and are typically godowns. The transporters fleet is typically small, old, and inefficient resulting in higher cost of transportation. This poses a threat to the sustainability of the logistics industry. Currently we have a separate agency for each of the major logistics infrastructure including rail, road, air, ports and numerous agencies. The coordination across all these ministries and agencies is often poor, and hence results in low levels of competitiveness for the logistics sector as a whole. hence, it is not surprising that india is ranked 47th in the world in terms of logistics performance by a world bank study. We need an integrated national supply chain and logistics strategy and policy. Q: What are the steps being taken or need to be taken to combat these problems? a: Companies must recognize supply chain and logistics as part of an integrated corporate strategy and a source of strategic advantage to drive both growth and operational excellence. government needs to recognize SCM and logistics as an industry and ensure coordination across all the key ministries and agencies (roads, rail, air, port etc.). The government needs to institute and implement a fast-track policy to enable approving of plans, sanctioning of funds, acquiring of lands or resources, coordinating across the key nodal agencies, bringing in the global expertise etc. Rapid implementation of dedicated Freight Corridors(dFCs), capacity expansion of non-major ports, hinterland connectivity, multimodal logistics parks, industry hubs and warehouses are the critical areas. There is a need to encourage organized sector and recognize the 3Pl industry. This will enhance the service levels, profit levels and better logistics management for user industries, and allow them to focus on their core competencies. Q: What are the sensitive areas still unfocused and need urgent attention? a: There are of course some other areas that need urgent attention. Regulatory and taxation should be in such a way to ensure setting up of optimal supply chain for industries. Rapid implementation of gST is necessary.

Q&A

SaNjay upeNdram FounDer & ceo aMarthi consulting

Q: What are the primary risks to sustainability of the Indian logistics sector? a: Traditionally logistics in india has been considered as basic transportation of goods. The prime concern was to achieve low costs and this was achieved by using low level technologies, overloading trucks, under paying workers etc. The evolving logistics sector is more service oriented and includes value addition. The way industries perceive these value added services and their willingness to pay for them is questionable and poses a risk for the sustainability of the logistics sector. Road transportation accounts for more than 60 per cent of inland transportation of goods, and highways that constitute 1.4 per cent of the total road network, carry 40 per cent of the freight movement by roadways. Slow movement of cargo due to bad road conditions, multiple check posts and documentation requirements, congestion at seaports due to inadequate infrastructure, bureaucracy, red-tape and delay in government clearances, make it difficult for domestic exporters to meet the deadlines. The rail network is congested as freight is moved on the same line as

Majority of the warehouses are small, outdated with only basic material handling systems and are typically godowns. the transporters fleet is typically small, old, and inefficient resulting in higher cost of transportation.
developing skills of the workforce in logistics industry is critical to enhance overall service levels and efficiency. number of truck drivers has to increase from current three to six or seven million by 2015. Similarly, number of loading supervisors has to go up from current 0.3 to 1 million by 2020. Requirement for warehouse managers, which is just 14000 currently, will be 40,000 by 2020. Our logistics and supply chain industry should focus on how to reduce the carbon footprint of the logistics industry, and hence drive towards green and clean supply chains.

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As per a recent study by Amarthi, in India the average freight revenue per tonne-km was Rs 3.50 against about 90 paise in the US and less than Rs 2 in China and Japan. The scenario has to change. And absorption of IT is the only way to bring in complete visibility of supply chainthat has to be undoubtedly accepted. Also, it is not only embracing IT, effective utilization of the technology also has to be ensured at all stages. The proposed Goods and Services Tax (GST) will obviously ease the transportation and distribution process, however, properly and timely implementation of the proposal is very essential. Innovation at every stage of each supply chain is very essential. Every system has a scope for further improvement, supply chain leaders have to believe that, and work accordingly. Effective utilization of the existing resources is very essential. Railways have to be used more extensively. Efforts must be taken up for utilization of under-utilized and not-yet-explored waterways. Logistics and supply chain service providers have to collaborate among themselves, wherever necessary, to ensure optimization of the chain. In India, we have a huge scope of sharing of warehouses, which opportunities have to be exploited. Many such steps will create win-win situations among the sharers. Also, consolidation of

Effective utilization of the existing resources is very essential. Efforts must be taken up for utilization of our under-utilized and not-yet-explored waterways. small warehouses in the GST regime (expected from April 1, 2011!) will be very essential to ensure warehouse optimization.

parting note

status quo of gst

as a matter of fact, the principal opposition parties in their manifesto had promised that if voted to power, they will bring in gST. implementation of gST depends on the cooperation and support of all political parties as constitutional amendments have to be made. i do hope all the political parties who have expressed grave concern on the price rise and plight of aam admi will convert this concern into real action by whole heartedly supporting gST. its a win-win situation for every one. praNab muKherjee after careful consideration of uniOn FinanCE MiniSTER the issues raised by the Empowered Committee of State Finance Ministers, we have revised our position to accommodate the concerns of the State governments. The Central government is willing to consider a phased approach for the introduction of gST. in a departure from its earlier stand, the Central government is also willing to accept a dual rate structure in the transitory phase leading eventually to a model gST.

Indian manufacturing sector is growing at a very rapid pace. Companies from different parts of the world are now either directly or indirectly setting up their complete manufacturing or components manufacturing factories here. Many domestic manufacturers are also looking out for expanding their businesses internationally. Sustenance of these emerging trends require competent logistics and supply chain support. Thus, mere dependence on Government supported projects will not solve the problems. Although, Indian supply chain and logistics industry is yet to get recognition as a separate industry at Government level, the industrys existence is well known among all. Thus, the manufacturing sector and the supply chain and logistics sector have to work together to explore ways for better, safer and economic means of delivering goods not only across the country but also around the world. Several experts opine that consolidation of small operating firms through acquisition or partnership will help the sector a lot, whereby deployment of IT will be feasible, and real time visibility will help instant decision making and enhanced control. As with passage of time, Indian logistics and supply chain sector is experiencing ever increasing demand from users for all kinds of services under one roof, for LSPs there is no alternative but to gear up to offer integrated services. As a preparatory step, this will lead to several events of merger & acquisition and partnering on special terms in the coming days.

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