LOG.India May 2011 Issue

INDIA

ON TOP: Things that top retail SCM performers do to stay ahead of the game...10LOSE CONTROL: How Japan’s tragedy has affected global logistics...16

How Abhijit Upadhye, Senior Director, National Supply Chain, McDonald’s India, runs the logistics of a huge, fast-growing chain keeping things lean.

Page 18

ServedSmart

May 2011 Vol. 4 — No.9 `100INDIA

TElEcom logisTics 20Movement of telecom network equipment opens a window of opportunity

NEglEcTEd waTErways 44India is ignoring inland waterways at its own peril

low adopTioN 24Why WMS still does not have enough takers in India

amit mukherjee, Vice-president (iT and supply chain) and group cio at rpg, has deployed exemplary supply-chain strategies at spencer‘s retail >> page 34

Method In Motion

October 2010 | Vol. 4 – No.2

IndIa’s LeadIng LOgIstIcs MagazIne

` 100

www.logisticsweek.com

HIGH WATERS: An in-depth report on the maritime cargo trade in India...32

FAST FORWARD 46Trials and triumphs of the express courier industry.

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5INDIA| May 2011 | www.logisticsweek.com

Outsourcing Shmorcing. That’s how I’ve felt about the cel-ebrated phenomenon of outsourcing, for long. Perhaps my dislike of outsourcing has its roots in the initial years

when the wave swept the Indian consciousness — it caught the fancy of an entire generation of youth, boys and girls who could earn hitherto unthinkable sums just by faking accents, assuming Anglicized names, and messing up their body clocks. A whole gen-eration of urban Indians stood the risk of living the prime of their youth in a daze, abusing their bodies, leading an unproductive life with no real challenges, pretending to be someone they were not – a lifestyle that in many eerie ways resembled that of a drug junkie.

Then there was IT outsourcing, that drew thousands of dreamy-eyed youngsters to companies that would make them do stuff that would be as mind-numbing as call-center work, but in the long run would have an upside – at least these people were learning how to write programs. A few of them would go on to become entrepreneurs and make and sell IT products.

However, that was still insufficient to make me a believer. I failed to see how outsourcing would help people in developing economies. I reckoned that the real creation of wealth happens when people use their faculties to invent and innovate, and not use them to slog for those who invent or innovate – after all it’s companies like Apple, Honda, Samsung, IBM and Wal-Mart that create real wealth for economies and intellectual capital that could be used by later generations in these countries. Companies like Infosys and Wipro would make fast bucks for a decade or two, use up the limited skill pool of a developed country like India, and then the outsourcing juggernaut would move to other upcoming economies where people are willing to go lower on wages and higher on slogging.

With such a huge baggage in my mind against outsourcing, it was tough for me to understand many dynamics of the logistics industry. This is an industry built on outsourcing – to third and fourth party logistics service providers. I remember attending conferences themed on outsourcing – and one specifically, a panel discussion held at a CII event where we had to discuss outsourcing. This was less than a year ago. The panel had representatives from both the enterprise as well as the 3PL side. I prepared my questions with the assumption that we would be talking an advanced level of outsourcing – things like best practices and benchmarking, for instance. To my puzzlement, the discussion revolved around understanding the basic concept of logistics outsourcing: Should Indian enterprises outsource their logistics needs? If yes, to what extent? Why do a majority of companies outsource only a small part of their supply chain? Do Indian companies suffer a mental block when it comes to outsourcing?

That discussion was instrumental in making me realize that perhaps I was looking at the subject at the wrong end of the spectrum. For a brief moment, I should take my gaze away from the service providers and fix it on large companies that are known for outsourcing.

Why do they outsource? What are the benefits they see in outsourcing even some of their core activities? Therein lay the real deal. I realized that, for companies with global aspirations, outsourcing is a key to expansion. Focus on what one knows best, and nurture those who know their stuff best.

Consider McDonalds. This month I had the pleasure of accompanying Pamela Cheema, our Editor – Special Projects (Pamela has done this issue’s cover story on McDonalds) to the company’s Taloja’s facilities and talk to Abhijit Upadhye, Senior Director – National Supply Chain, McDonalds India.

McDonalds serves more than 6 lakh customers daily at over 217 restaurants across 40 Indian cities. After many years of watching its step in India, the chain has stepped on the pedal – it’s growing at a scorching pace of 30 percent. Over the years, the company has managed to come up with many innovations for the Indian market, some of which are being emulated in other markets. And can you guess the strength of the McDonalds’ India supply-chain team? Don’t even hazard a guess. (Hint: McDonalds India’s logistics is 100 percent outsourced). To know the real number, you need to refer to the story.

The story is somewhat similar with other multinationals who are on an expansion spree in India, not only in food retail (KFC is another example), but also in consumer durables and telecom, for example. These companies have outsourced a major chunk of their logistics to 3PLs. And it’s working out exceedingly well for them. The Indian companies, on the other hand, are still squeamish about outsourcing – a lot of them don’t want to let go of main logistics activities. Perhaps it’s time they look at the way MNCs manage logistics in India and try to understand the merits of outsourcing. Much like I, in my small way, intend to.

Aanand [email protected]

www.twitter.com/logisisticsweek www.facebook.com/logisticsweek

Aanand PandeyEditor

Let Go

Contents

Industry reportPorts of Call

Featurethe need For speed

upshotDealing With CostsSupply-chain divisions of companies have a tough time keeping costs in check. India Supply Chain Cost Summit shows how it can be managed.

ColumnTime To RebalanceNatural disasters can disrupt global supplies for companies. Decentralizing manufacturing and the global supply chain could help alleviate the situation in such cases.

32

46

14

16

18

INDIA| May 2011 | www.logisticsweek.com6

The maritime cargo trade in India is set to grow exponentially. Avalon Consulting analyses the factors that will contribute to this growth.

The express courier industry has been growing tremendously. The success has come after years of work by companies through diligent deployment and setting up of various infrastructure.

46

Cover storysimplicity Fused With ComplexityMcDonald's has a supply chain network which is classic in its simplicity, entirely devoid of frills, but at the same time, immensely complex and intelligent in design.

1814

16


may 2011

50

52

56

reGularsevents 62

MAY 2011

panorama

InterFaCe

BaCK to BasICs

We explore four terminologies - Cross-docking, Roll-on/Roll-off, Overall Equipment Effectiveness, and Continuous Replenishment.

Books, Journals, Blogs, Technology, C-Profile, and Solutions - a look at what's new in and for the supply chain industry.

CHEP India has been on a roll in India for three years. And its concept of pallet-pooling is highly popular. Meet the man behind its strategy - Pranil Vadgama, President of CHEP India.

ADVeRtIseRs InDeX

BLR ......................................................................... 37

EXIDE Industrial .......................................................ifc

Gandhi Automation ...................................................11

Orange City Logistics Park .......................................13

Araham Logi park ...................................................Ibc

CII Events ................................................................ 51

Safexpress .............................................................. 23

Shree Rajlaxmi ........................................................ 31

Shree Rajlaxmi ........................................................BC

Vijay Logistics ........................................................... 4

Vodafone ............................................................. 8 & 9

IILF Award ................................................................15

Siemens ................................................................... 3

Crystal Roadways .................................................... 27

iPad ........................................................................ 41

Subscription ........................................................... 45

Warehouse Handbook ............................................. 59

6 Southern Asia ...................................................... 60

Great Eastern Impex. ................................................12

INDIA

GOOD TO GO: GST Bill looks well on its way. The industry weighs in...10

STOPWATCH: Warehouses need to set labor standards. Here’s why...20

How Atul Agarwal, Associate General Manager (Supply-Chain), Dabur India Ltd., runs a lean supply-chain for its over 300 products.

Page 24

LIFE SUPPLY

April 2011 Vol. 4 — No.8 `100

INDIA





Method In Motion



` 100


RIGHT MOVES: What goes into choosing the right location for a warehouse...46

TOWERING ABOVE 38Unravelling India’s telecom logistics, end to end.

aprIl 2011

50

analysis 10Global supplier Complexity: top Retail supply Chain Collaboration Pressure

Source: Aberdeen Group, March 2011

Rising business complexity of managing an increasingly global business network

Lack of business integration leading to poor communications with suppliers

Emergence of new sales channels

Rising logistics costs

Rising raw material/manufacturing costs

Competitive pressure to introduce new products

0% 20% 40% 60%

43%

43%

31%14%

23%26%

15%

15%

Percent of Respondents

21%

24%

46%

Best-in-ClassAll Others

56

10

< AnAlysis

INDIA| May 2011 | www.logisticsweek.com

What Top Retail Supply-Chains Dosuccessful retailers ramp up their supply-chains by frequently communicating with their suppliers, besides sharing early product lifecycle information. These and some more are the key findings unveiled by the Aberdeen Group in their recent report. Frewin Francis picks out some takeaways on retail supply-chain best practices and what the rest of the competition need to follow.

Iron ore is a very important commodity and the lifting of the export

ban is good for Indian shipping companies and will definitely help dry bulk carriers. Our vessels have been transporting iron ore on a regular basis to China and Far-East.

— s. Hajra, CMD, shipping Corporation of

india

in an interview with Business Standard.

Train of ThoughT

More than 90 percent of the segment is unorganized. While the industry grew at 10 pc in the past few years, organized players like us have seen a growth of 12-13 pc. This clearly shows a shift of 2 pc to 3 pc taking place from the unorganized to the organized sector

— Ajay Chopra, CEO, DiEsl

in an interview with DNA.

Typically, we look at those products that have a limited retail footprint. It makes sense to take them online because of their limited availability. Being high-value, the cost of shipping does not pinch too much.

— sunil Duggal, CEO, Dabur india

on why FMCG firms are moving to e-commerce, speaking to Business

Standard .

Legacy issues in large global logistics organizations such as a top-heavy cost base and IT systems are limiting maximization of the high market potential in the Indian context, creating opportunities for entrepreneurs to correct these issues.

— Gautami seksaria, Founder and Partner,

sClC

on the rising trend of entrepreneurship in the Indian logistics industry, in an

interview with livemint.

Increasing visibility of data and informa-tion sharing, cross channel growth, col-laboration and business process integra-

tion are some of the top strategic actions for retailers to achieve seamless product flow to shelves. These and some others were the key findings of a survey conducted by the Aber-deen Group in its annual report over three consecutive years. Add to that the high level of customer demand and the extremely dy-namic nature of the retail market, and it is no surprise that retailers and their suppliers re-quire to constantly rework methods to meet their profit margins and ensure growth.

In its last year’s survey, the Aberdeen Group found out that 46 percent of retailers said that collaboration on data sharing and business process integration with suppliers would con-tinue to remain the top game changing strate-gies. Collaboration, visibility and integration

continue to remain in the spotlight this year too for retailers as business processes get complex from design to deliver.

Some primary reasons why collaboration has gained so much traction among glo-bal suppliers are rising business complexities of managing business at a global level. Ris-ing logistics costs and emergence of new sales channels have increased pressure on retailers to collaborate with their suppliers. According to the 2011 report, the lack of nimbleness in global sourcing of prod-ucts, order management complexities, mis-ship-

ments, and lead time delivery impreciseness has not allowed retailers and manufacturers to meet visibility, collaboration and integra-tion with their suppliers (See graph).

Achieving cross-channel growth is an-

Global Supplier Complexity: Top Retail Supply Chain Collaboration Pressure


Rising business complexity of managing an increasingly global business network

Lack of business integration leading to poor communications with suppliers

Emergence of new sales channels

Rising logistics costs

Rising raw material/manufacturing costs

Competitive pressure to introduce new products

0% 20% 40% 60%

43%

43%

31%14%

23%26%

15%

15%

Percent of Respondents

21%

24%

46%

Best-in-ClassAll Others

12 INDIA| May 2011 | www.logisticsweek.com

< AnAlysis

other reason 31 percent of the Best-in-Class respondents cited for adopting collaboration. Cross-channel operations en-able direct-to-store drop ship-ments and direct-to-customer deliveries. It is for this reason that the retail supply-chain is seeing structural changes in distribution, fulfillment and transportation.

In its case study on World Duty Free (WDF), a specialized retail organization with 90 retail locations, it was discovered that the organization faced supply-chain disruptions from natu-ral disasters. A situation arose where the supply was coming in and no sales were happening. WDF began increasing supplier communication and collabora-tion and synchronized demand and supply by reducing lead times, increasing order frequen-cy, reducing size of safety stock and drastically decreasing the number of out-of-stock cases.

There are some rules that Best-in-Class companies follow that distinguishes them from the others. They are likely to develop decisions based on the suppliers’ access to their supplier partner data. They are also more likely to share early product lifecycle information with suppliers. This is ideal collaboration for both – retailer and supplier (See Table).

Adopting best-in-class prac-tices must be done with careful planning by those falling back in the competition. The level of competitive edge of their exist-ing framework must be care-fully studied to see adaptability of new practices that need to be followed. A careful scrutiny of daily execution processes would help before adopting new strate-gies or replacing existing ones. Adoption of the right technol-ogy for improving processes and operations is another factor that needs to be taken care of while re-engineering the supply chain with a view to collaboration.

The introduction of electronic communication between criti-cal upstream suppliers is one of the key changes suggested by Aberdeen for those who need a serious overhaul of operations. Some tools suggested are the use of extensible markup language (XML) or electronic data inter-change (EDI).

And last but not the least, enabling visibility to suppli-ers of SKU’s in the inventory and making decisions based on data available about their suppliers (financial forecasts, production schedules, etc) are some of the steps that could be adopted by those who need to improve their existing proc-esses and operations.

Great Eastern Im pex (G EI) is a le adin gsy ste ms inte gra to r and so luti on pro videri n B a r c o d e & R F I D t e c h n o l o g i e s

O u r c u s t o m - b u i l t & s t a n d a r d s - d r i v e n A ut o I D s ol ut i ons he l ps bus i ne s s e s t oid entify & track goods across the supply chain

N e e ds a na l y s i s , m odul a r a ppr oa c h t o s ol ut i on d es i g n & s eam l es s i n t egr at i onwi t h e n t e r p r i s e a p p l i c a t i o n s e n a b l e busi ness es ach ieve fast er ROI & su cce ss

Manufacturing >

Distribution >

Retailing.

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Bar Code & RFIDsupply chain technology

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- Network of RFID readers capture real-time information on the assembly line

- RFID data is filtered & updated to enterprise applications

- Timely & accurate reports available on Work order status, WIP levels, Bottlenecks, Productivity & Yield.

- Finished products are RFID tagged (uniquely) for traceability & recall

- Pre-tagged shipments arrive at facility (or is smart labeled at site)

- RFID enabled entry/ exit doors allow real-time data capture & reporting

- Vehicle-mount readers allow order- picking, & shipment authentication - Improved load factor and significant increase in turnaround times

- Item-level identification & tracking (RFID) at retail store level

- Portable RFID readers enable inventory counts in a matter of hours

- Reader-enabled 'smart shelves' or 'store room’ allow dynamic re-ordering - Tagged products can be secured & integrated with anti-theft/ POS systems

( ISO 9001:2008 certified company)

Top Performers Earn Best-in-Class Status


Definition of maturity Class

Average class performance

Best in class. Top 20% of aggregate performance scorers

n Had established electronic communication with 79.8% of suppliersn Possessed a perfect order rate of 94.1% delivered to customern Decreased their out-of-stock rate by 21.4% year-on-yearn Decreased their inbound logistics costs by 6.9% year-on-year

Industry average. Middle 50% of aggregate perform-ance scorers


Laggard. Bottom 30% of aggregate performance scorers


Total Warehousing Capacity of more than 10 Lacs Sq. Ft Ready to occupy / Build up facility 1 Lacs Sq. Ft. Construction of another 1 lacs Sq. Ft is in full swing Strategic location with good road, rail and air connectivity Ample truck parking area with dormitory Commercial complex featuring, ATM, bank , restaurants, dispensary and stationery shop Sufficient office area on ground and mezzanine Computerized weigh bridge Fire hydrants for safety Battery charging area for MHE’s DG for 24 X 7 power back up Sky lights for minimum electricity consumption and Turboventilators to maintain temperature High compound wall for safety.

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14

The second edition of the Supply Chain Leadership Council’s ‘India Supply Chain

Cost Optimization Summit’ was held on 21st April 2011 at the Orchid Ecotel, Mumbai.

The summit attracted supply-chain pro-fessionals from various sectors of the indus-try - manufacturers, retailers, traders and logistics service providers (LSPs). Mr. Malay Shankar, National Business Head, DIESL, spoke of the progressive role of organized LSPs in helping manufacturers and retailers manage their supply-chain operations and costs optimally, thus allowing them to fo-cus on their core business.

Dr. Rakesh Sinha, COO of Godrej Con-sumer Products, highlighted the need to edu-cate the company’s board on the significant impact of both, efficient or inefficient SCM. Using a case study, he demonstrated how re-plenishment-based SCM has helped Godrej achieve significant market share gains across products and saved crores of rupees in avoid-ing premature capacity expansion.

Credited with setting up the global supply-chain for Mahindra-Renault Lo-gan project, Shashank Raodeo, GM (Auto-motive Logistics), Mahindra & Mahindra, emphasized the importance of strategic sourcing. He explained that a five percent reduction in material cost may result in a one percent increase in operating profit which is equivalent to 10 percent increase in sales, a function with limited headway due to several external and competitive factors. Major Shashi Tiwari, VP – BD and SCM, The Loot, stressed on the develop-

ment of an efficient business model which in his opinion is the main driving force to proper SCM.

Four experts in procurement and supply chain management across different product categories viz. Saurabh Tiwari, Lead – Stra-tegic sourcing (Asia Pacific), Kraft Foods; Ashu Khanna, Head – Supply Chain, Mar-ico; Susshruth Apshankar, Head – Com-mercial Strategy, Idea Cellular; and Ashok Kumar, Director – Supply Chain, Pepsico India, shared their common experience of extracting up to 2.5 percent more procure-ment value per rupee spent. They substanti-ated this fact based on simple principles of centrally managed supplier partnerships by deploying effective technology, encourag-ing innovation at supplier level, coaching the process of sourcing and SCM at supplier procurement level, reducing supplier base and, in general, focusing on non-price re-duction based approach.

Vikram Kole, Head – Sales, DSI Online, focused on the importance of IT in effec-tive SCM and specifically emphasized on extending the technology platform to more stakeholders in the supply chain process. Commenting on plans of expansion from

300 restaurants to over 1,000 by 2015, Vineet Jain, Head – Distribution, Yum! of-fered insights into the collaborative develop-ment of a logistics de-cision criteria matrix that allows them to determine the most cost optimal mecha-nism with a common reference point for the entire team.

Elaborating on Nokia’s arrangement

with the Tamil Nadu government owing to its factory location in a Chennai SEZ, Sushil Agarawal, Head – Supply Chain, Nokia India, mentioned how the waiver of sales taxes has created a GST environment for them even before its implementation, enabling direct factory to state level ware-house delivery model causing a 20 percent reduction in on-hand inventory cost, 10 percent reduction in transportation and 35 percent reduction in warehouse cost.

Other speakers included Dheeraj Gupta, Founder, Jumbo King; Shammi Dua, Head, Logistics and Customer Operations, Akzo Nobel; Dharmendra Gangrade, GM and Head of Logistics, Pidilite Industries; R. Ravichandran, Head, Logistics (Electrical products), L&T; Vivek Karwanyun, GM, SCM, Dalda (Bunge); and Sanjay Sinha, MD, Leeway Logistics.

Part of the event was a brainstorming exercise organized by Data Systems In-ternational (DSI), associate partner of the event, on technology, innovation and best practices in supply chain cost management which gathered the professionals present into groups, and generated lively discus-sions and valuable insights.

14

Dealing With Costs

L-R: Vivek Karwanyun, GM-SC, DALDA (Bunge); Shammi Dua, Head (Logistics & Customer Operations), Akzo Nobel; R. Ravi-chandran, Head, Logistics (Electrical products), L&T; Satish Moorjani, VP & GM, Bristlecone; Sanjay Sinha, MD, Leeway Logistics; Maj. Shashi Tiwari, VP (BD & SCM), The Loot; Dhar-mendra Gangrade, GM & Head (Logistics), Pidilite.

INDIA|May 2011| www.logisticsweek.com

< upshot

It's a constant attempt by supply-chain divisions of user companies to check spiralling costs. The event, India Supply Chain Cost, seems to have addressed this effectively by bringing together the men who manage the daily hassles of their respective supply-chains. The solutions are all here. Remya Philip reports.

Date: April 21, 2011Event: India Supply Chain Cost Optimization Summit Organizer: Supply Chain Leadership Council Venue: Orchid Ecotel

16

< OpiniOn


The earthquake followed by the tsunami in Japan not only reduced infrastructure to rubble but also affected global supplies of auto components, chemicals and other raw materials from the country. Growth took a knock from nature. Companies which decentralize sourcing locations can ensure that production remains unaffected in the case of catastrophes. A case of just-in-time to just-in-case.

16

< OpiniOn

ARakesh singh Director and Professor of Economics and SCM at Durgadevi Saraf Institute of Management, and Chairman, ISCM

A recent mediA report stated that Japan is us-ing its diplomatic skills to help its automakers in india avoid production cuts due to a halt in sup-ply of components from factories destroyed by the earthquake. the Japanese government has requested new delhi to allow its carmakers to source spares from alternative destinations, and exempt them from mandatory tests to prevent any disruption in their supply chain and production.

the global supply chain cannot get more in-teresting than this. A country that has all along been the urban center of auto component pro-duction and supply to the rest of the world, will now be sourcing supplies from its competitive destinations to help its players emerge from the economic shocks due to the earthquake. this raises some interesting questions. Will it affect the concept of just-in-time? Will Japan continue to maintain its hold as an important destination of auto component supplies, or will it give rise to the emergence of new destinations like taiwan

and indonesia? Will companies move from just-in-time strategy and adopt just-in-case strategy? Before seeking answers to these questions, it is important to understand its emergence and the importance of global supply chain in today’s dy-namic environment.

the inundation and catastrophe in Japan from the tsunami and the earthquake has had a cascading effect on global supply chain across various industries. But it is discernible in two main industries — Auto and electronics. Possi-bly, the disasters may have dented the economic importance of the country to some extent, but it continues to remain an important part of the world industrial economy. consider the com-panies based here and its global reach: toyota, Suzuki, Volkswagen, General motors, Honda, among others. these and many others have their supply base in Japan and their global reach in de-veloped and emerging markets. Such disasters can disrupt the supply-chain and affect produc-

Time To Rebalance

17INDIA| May 2011 | www.logisticsweek.com 17

tion globally as in Japan. this is a warning to other global players to rethink their global supply-chain strategy.

The Cost Of Calamitythe world has become flat due to the tectonic shift in the world economy. the disintegration of structural and mar-ket reforms in developing economies, the formation of the WtO, and the invention of the worldwide web, have contrib-uted to the realignment and decentralization of global pro-duction. the difference in relative prices of both labor and raw material has given shape to new supply design based on the theory of comparative advantage, propounded by david ricardo way back in the 19th century. Apple uses the concept of decentralized global supply-chain network and optimizes its cost of production in the manufacturing of the iPod. most of the components of iPod are sourced from 18 different des-tinations, thus reducing the cost of the final product.

But the 8.9 magnitude earthquake and the ensuing tsu-nami not only caused destruction to infrastructure, but dis-rupted the production of components from chips to ship and knocked out factories supplying everything, from high-tech components to steel, gas, and chemicals. toyota and Sony ericsson have suspended their production. Firms like mit-subishi Gas chemical and Hitachi chemical which supply a specialty resin that is used to bond a part of the microchips that go into smart phones, and which control 90 percent of the market, have been damaged. Kureha, a maker of a ‘cru-cial’ polymer known as polyvinylidene fluoride (PVdF) used in lithium ion batteries that power devices like Apple’s iPod, and which controls around 70 percent of the market, has had to shut down.

Redrawing The MapA global supply-chain has always been challenging for mul-tinational organizations. due to a lengthy lead time, it is im-portant for organizations to plan its demand forecasting, op-timize network cost by factoring in taxation and exchange rate fluctuations and its impact on supply-chain cost.

earlier, in the case of unavoidable accidents, firms would source the stable as well as fast moving components from the same destination leading to a concentration of centers of supply. However, even then the supply base would be affected and shortages would become the norm. in this case, energy supply and infrastructure destruction will increase the lead time of normalcy, thus affecting production globally.

in order to avoid production cuts in india due to the short supply of components, Japan has requested the indian gov-ernment to allow its carmakers to source spares from alter-native destinations and exempt them from tests. the spares will have to be sourced from other markets such as thailand, malaysia, indonesia and europe.

the uncertainty facing indian auto players can easily be

solved. But testing would become essential for the quality of the production to remain acceptable. What should be done is decentralization of the production of auto components. Just in case a similar disaster strikes any other place in the world, factories across the globe can still produce and meet demand to a great extent. Optimal geographical diversifica-tion and continuous sourcing from these destinations, will help mitigate such risks. if we make room for this request, components sourced from a new vendor will lead to changes in vehicle specifications thus creating long-term problems for the component players. it is important that each compo-nent be validated by a pressure test before it is sent into com-mercial production.

Letting the homologation process of testing exist as it is

will help the world component sourcing market to diversify into other east Asian locations and european countries. the component market will become more competitive and Just-in-time efficiencies will not be affected by any disaster as alter-natives in the form of other locations will be available.

Firms dealing with global supply will have to adopt ex-ceptional best processes which alert demand planners about unusual changes in demand and supply and provides policies for dealing with them. in simple words, companies should be ready with solutions to meet demand expected to be great-er than supply in the case of force majeure events. So also, the reverse when supply is expected to decrease sharply because of the same.

natural disasters are no doubt unusual, but companies need to factor them into their plans and create a substantial long term supply chain. Just-in-case locations like malaysia, indonesia, thailand and other east european destinations can create competitive pressures on existing sourcing loca-tions like Japan, but it will benefit players and enhance their ability to source components from different regions, miti-gating the sourcing risks.

For instance, Sony ericsson has cut back production as it has no alternative supply source and would have benefited if it had two sourcing bases: one in the U.S. and the other in Japan. this disaster has definitely opened up the need to diversify sup-ply bases and minimize the risks for global supply chain.

Natural disasters are no doubt unusual, but companies need to factor them into their plans and create a substantial long term supply chain.

The author can be reached at [email protected]

< Cover Story

INDIA| April 2011 | www.logisticsweek.com18

Abhijit UpAdhye,Mcdonald's india Senior director, National Supply Chain, Menu Management & New business Channels

< Cover Story


The Big Idea

Photos: Vikram Barwal

McDonald's, the world’s single largest food service retailer, has a distinctive supply chain system. Pamela Cheema unravels it.


< Cover Story

rant chain, which is a byword for fast food, is present in 120 plus countries globally. In India, the fi rst outlets of the chain threw open their doors to the public in Delhi and Mumbai in 1996 within one month of each other. McDonald's is present in 40 Indian cities with 217 restaurants and serves 650,000 customers daily.

Largest Food retailerInternationally, McDonald's is considered the largest food serv-ice retailer in the world. The fi rst restaurant was established in 1955 in Des Plaines, Illinois, USA. The chain serves a humungous fi gure of 50 million customers every day and has founded 30,000 restaurants across the globe. The informal din-ing-out industry in India is estimat-ed at $74 billion a year according to Mr. Upadhye, of which $12-$14 billion is the revenue earned from Western and Indian fast food. How-ever, Indian fast food with hun-dreds of menus, generates a larger proportion of this revenue.

Including its restaurant staff, McDonald's India employs a siz-

20

The McDonald's restau-rant at Andheri (west), Mumbai, overf lows with people. Droves of customers surge into

the restaurant and quickly fall into a fast moving queue before the food counter, where they are served by neatly attired restaurant staff. The popular fast food, in-cluding tempting offers from the newly launched Mcspicy range, is swiftly placed on clean trays along with Cokes of varying sizes. Cus-tomers’ bills curl up from credit card swiping machines, with the entire operation marked by quick-ness of service and eff iciency. This Quick Service Restaurant chain (QSR) promises its customers a one-minute guarantee of serv-ice, which is amply evident by the speed of operations at the outlet.

“McDonald's is a limited menu restaurant,” remarks Abhijit Upad-hye, Senior Director-National Sup-ply Chain, Menu Management and New Business Channels, “and our work is characterised by speed of operations.” This ubiquitous restau-

n The three legged stool (three legs are company, owner/operators and suppliers)

n Culture of partnership and collaboration

n Goes beyond ‘what we do’; its also ‘how we do it’

Result – long term wealth and competitive advantage for McDonald's and Suppliers

Mcdonald's Supply Chain Fundamentals

able complement of staff number-ing 9,000 people. But its unique and intricate supply chain network is managed by the austere fi gure of just fi ve people across the country! “That fi gure of fi ve people includes me,” says Mr. Upadhye in a calm and unfazed manner. “And if you include the Quality Assurance peo-ple, then there are just eight people handling McDonalds’ supply chain all over India!”

No Frills LogisticsMr. Upadhye is uber cool, lucidly articulate and passionate about his subject as he unravels with great expertise and skill the supply-chain of his company. The supply-chain network of McDonald's is indeed sui generis: 100 percent outsourced, lean with no back-up staff and no frills. “This is not just how McDonald's operates in In-dia,” explains Mr. Upadhye, “this is how McDonald's works every-where. So although we are grow-ing at 30 percent-40 percent every year in India, I don’t think we will increase our supply-chain staff for the next two or three years. If we continue to grow by 30 percent-40 percent every year, by 2014 I may add two more people in our supply-chain, because some of our cat-egories in which we are involved such as ‘buying’, may become large enough for a person to start doing a deep dive in these categories.”

CONFIDENTIAL - For McDonald’s Use Only

Critical Components of Our Supply Chain

Tier 1 Supplier Store

InboundTransportation

OutboundTransportation

Distribution Center

Return logistics(for plastic

crates)

ProcessingGrower / Processor

-Lettuce growers

-Potato growers

-Poultry

-Coating systems

- Veg & Chicken patties: Vista

-Potato products:McCain

-Dairy: Amrit Foods & Dynamix

-Bakery: Mrs Bectors-Liquid Products:Mrs. Bectors

-Fish: Innovative-Beverages: Cola Cola India

-Noida

-Mumbai

-Calcutta

-Bangalore

40 + cities around 212 stores

Dedicated fleet of

multi-temp and single

temp trucks

Dedicated fleet of

refrigerated trucks

Tier 2 Supplier

Radhakrishna Foodland is sole service provider for logistics and distributrion

Source: McDonalds


Before McDonald's launched its f irst outlets in India in 1996, much groundwork was done to ensure the smooth eff iciency of its res-taurants. From 1990 onwards, spe-cial teams arrived from the United States to check the effectiveness of India’s logistics industry, the reli-ability of its transport sector, etc. Much work was done to put togeth-er a supple and eff icient supply-chain which, despite India’s crum-bling infrastructure, would work at an optimal level.

“It took close to six years for the company to set up its entire supply chain,” reminisces Mr. Upadhye. “We had to develop special menus for India. Worldwide, McDonald's is known for its beef burgers. But in India, which is known for its The Distribution Center run by Radhakrishna Foodland Pvt. Ltd. at Taloja, Maharashtra.


Sourcing from all over India

S

S

S

S

Maharashtra• Vista Foods – Veg and

Chicken Patty• Mrs Bectors– Bun

supplier• Cargill – Oil• Dynamix – Cheese • Packaging suppliers –

Cups, Wraps, Straws, Napkins

• Godrej Tyson – chicken meat supplier

• Venky’s – chicken meat supplier

Cochin• Innovative Foods – Fish

Patty

Ooty • Green Earth – LettuceS

S

S

Mehsana (Gujarat)• McCain – Wedges,

Fries and Hasbrown patty

Simla / Nainital• Binay Farms – Lettuce• Meena Agritech –

Lettuce Ghaziabad (UP)• Amrit Foods – Dairy Mix

supplier

Ludhiana (Punjab)• Mrs. Bector’s –Sauces

and Toppings• Kerry – Batter / breadingChandigarh (Punjab)• Pagro – Frozen Veggies

S Noida (UP)• Mrs Bectors Bakery–

Bun Supplier

Distribution Centre

Supplier LocationsS

S

Coimbatore – Chicken MeatHyderabad – Chicken MeatS

Source: McDonalds


< Cover Story

religious sensitivities, a special ef-fort was made to create new menus without beef and pork. About 60 percent of India’s population is veg-etarian, so we had to devise new veg-etarian recipes for this segment. It took about six years not only for our supply-chain to be set up, but also to put all our products in place for serv-

ing in our restaurants.”McDonald's restaurants in the

south and west of India function un-der Hardcastle Restaurants Private Limited which is a Development Li-censee. Amit Jatia is the Vice-Chair-man of the company. For the north and east of India, McDonald's has formed a joint venture with Con-

naught Plaza Restaurants Private Limited of which Vikram Bakshi is the Managing Director. These two companies monitor, scrutinize and judicially promote the brand of Mc-Donald's in the country.

Farm to PlateWhile the supply chain of McDon-ald's at fi rst glance appears simple, its diverse components are both crit-ical and multi-layered. Food ingredi-ents are supplied by two categories, Tier-I and Tier-2 suppliers. Tier-2 suppliers comprise growers and processors who include importantly, lettuce and potato growers, poultry farms and companies which manu-facture coating systems that coat the vegetable and chicken patties. The ingredients are supplied to Tier-I suppliers who process them, for in-stance, into vegetable and chicken patties — this is done by Vista Proc-essed Foods Pvt. Ltd. — or potato products like French fries, potato wedges and hashbrowns which are expertly churned out by McCain Foods India Pvt. Ltd.

The products are then transported in a dedicated fl eet of refrigerated trucks to the company’s Distribu-tion Centers. Multi-temperature and single temperature trucks then trans-port the fast food swiftly to the 217 McDonald's restaurants across the country. The supply-chain of McDon-ald's has also been expertly devised to include the signifi cant aspect of return logistics. Says Mr. Upadhye: “I have a large component of return logistics. The buns are packed in

n 100% Assured Supplyn Competitive and Predictable

pricingn Food safety and continuous

quality improvementn Simplifi cation of restaurant

operationsn Effective promotions management

Mcdonalds' Supply Chain Goals

Vegetable pattis on the conveyor belt at Vista Processed Foods Pvt. Ltd.


Lettuce FarmChiller Processing center

Distribution Center

Quality Inspection Program

Lettuce Cold Chain

Source: McDonalds

110 0 37

1 11 1 11 1 119 2 2 2 26783 8 9 678 48 8


< Cover Story

plastic crates to ensure their quality. These crates have to go back to our lo-gistics facilities, that’s where return logistics comes in. From there they are sent to the bakeries.”

The fast food chain has four Dis-tribution Centers across the country to serve its 217 restaurants. The DCs have segued seamlessly with the vi-sion of the company which has em-barked on a period of roller coaster growth, with one McDonald's out-let being launched every ten days in the country! The company owns DCs in Noida and Mumbai which

performance in a proper fashion so that Key Performance Indicators (KPIs) are not affected at all. This is how McDonald's operates not just in India, but everywhere.”

Underlying the suppleness of its supply-chain are three principles to which the company adheres unwa-veringly, the principles of trust and collaboration between the brand, the owners or operators, and the suppliers. “It’s like a three-legged stool,” explains Mr. Upadhye pa-tiently. “Each leg (principle) has to be equally strong so that there’s no collapsing foundation.” McDonald's also believes in a culture of partner-ship and transparency with its sup-pliers. He says: “We have 100 percent transparency in everything that we do which is very critical for us when we work with our suppliers. You will find our most confidential plans with our suppliers and we expect similar transparency from them.”

are primary Distribution Centers. The other two Distribution Centers are in Bengaluru and Kolkata and are housed in leased properties. The supply-chain of the fast food chain is in effect a hub-and-spoke model be-cause the DCs act as hubs. The trans-portation of McDonald's has been completely outsourced and since 80 percent is refrigerated truck move-ment, the company has a dedicated fleet which transports their goods.

outsourcing All the WayThe success of the supply-chain model of McDonald's can be direct-ly attributed to its unique concept of outsourcing work. Unlike other corporate heavies, the company has a 100 percent outsourced supply chain. “McDonald's believes that we should outsource everything to a company who are experts in their subject matter,” says Mr. Upadhye earnestly, “and then monitor their

We speed across to Taloja, approximately 30 kms from Mumbai, in the early morn-ing sun. Taloja is an industrial area of Ma-harashtra, with industries mushrooming on every road. Vegetation is sparse, with tiny streams snaking through mangroves. But it is in this area that McDonalds’ dis-tribution partner, Radhakirshna Foodland Pvt. Ltd and one of its Tier-1 suppliers, Vista Processed Foods Pvt. Ltd, have their facilities.

Vista has a squeaky clean facility; the CEO, Bhupinder Singh, a burly Sikh from

Chandigarh, explains how their associa-tion with McDonald's has influenced his firm to adopt impeccable standards of hygiene. To take a quick look at the pro-duction of their vegetable patties, we don white suits, hair nets, masks, gloves and boots and descend into the cavernous depths of the production facility below. We watch with awe as the ingredients of the patties are ground and mixed in giant containers, moulded into patties, doused with a milky substance, frozen at sub-zero temperatures in massive refriger-

ated facilities and then tumble out to be packed in cardboard cartons.

Radhakrishna Foodland Pvt. Ltd is a brief car ride away. Its low, white build-ings house a 365-man workforce. The Distribution Center is well-spaced out with batches of food products packed in cartons—the cartons bear labels with the dispatch dates of the products. Many of the cartons are stored in a refrigerated room at sub-zero temperatures. In the transport division, vehicles are parked in neat rows, with newly-acquired trailer

trucks standing in the shadows of the setting sun.

Both facili-ties appear to be paradigms of the logistics facilities that McDonald's expects and conform to the exacting standards of the world’s larg-est food service retailer.

impeccable Facilities

Trucks parked at Radhakrishna Foodland Pvt. Ltd.

n Number of restaurants: 217n Number of Distribution Centers: 4n Number of Core suppliers: 14n Total number of suppliers: 40n McDonald's India supply chain employees: 5n Inventory Turn Ratio: 36

Mcdonald’s Supply Network – Some Key Statistics


McDonald's has 14 core suppli-ers who supply directly to the fast food chain and they are known as Tier-I suppliers. Examples of Tier-I suppliers are Vista Proc-essed Foods Pvt. Ltd., the Dynamix Group, Mrs Bectors, etc. The other suppliers forward ingredients to the Tier-I suppliers f irst and they are termed Tier-2 suppliers. The fast food chain has a total of 40 suppliers from whom it sources its ingredients. Most of the suppli-ers are local, but some are inter-nationally famous foreign brands like McCain Foods India which set up shop in India when McDonald's ventured into the fast food busi-ness in the country.

For a McDonald's supplier the terms of work are rigorous. A com-pany’s stellar credentials are not enough; the supplier’s job does not end when the product leaves his premises, rather it ends only when the customer consumes it. McDon-ald's expects its suppliers to per-sonally ensure the quality of their products to skirt the risk factor. “Most of my employees are 12th standard pass, they know nothing about food,” elaborates Mr. Upad-hye, “so I expect my suppliers to be absolutely accountable to ensure that the quality that I’m selling to my customer is perfect as that is very critical.” Suppliers like Coca Cola which is McDonald’s beverage partner also, for instance, take wa-ter management classes in its res-

taurants to ensure potable quality of drinking water.

Keeping the FaithEven more startlingly different from most company-supplier relation-ships is the fact that McDonald's has no legally signed agreements with its suppliers. The company has only a simple ‘handshake relationship’ with them! When this idea was first proffered to them, McDonald's faced a barrage of criticism from its sup-pliers. “But we told them that firstly, we have only a one product-one sup-plier relationship with them,” says Mr. Upadhye calmly, “and secondly, since we are into long-term relation-ships, no matter what the ups and downs in terms of economy, reces-sion or inflation, McDonald's will never renege on its terms.”

The fast food chain sells 30 or 35 independent SKUs at its outlets. But with various combinations (a meal can be small, medium or large, while a Coke can also be sold as regular, medium or large), there are 100-150 SKUs which are sold to customers. Having limited SKUs, unlike Udipi

25

n 1990 – 1996: Setting up the foundation

n 1996 – 2003: Meeting McDon-ald’s supply and quality expec-tations

n 2003 – 2010: Supporting ag-gressive growth of McDonald’s India

n 2011 – 2017: Gearing up for the future

Four distinct phases Of Supply Chain development in india

Inventory Planning

Procurement

WarehousingTransportation

InformationManagement

Value AddedServices

DistributionCentre Quality

Inspection

Source: Radhakrishna Foodland Pvt. Ltd.

Mcdonald's Supply Chain: how things Move

A supplier's job does not end when the product leaves his premises, rather it ends only when the customer consumes the product.

restaurants which have hundreds of items on their menus, has skill-fully converted McDonalds’ supply-chain into a streamlined system of operations in various ways—there is speed of service with a one-minute guarantee of service as the number of items on the menu are limited and sourcing ingredients becomes infinitely easier since there are fewer products and suppliers to deal with.

“I have 40-50 vendors across the country, but 80 percent of the buy comes from just 14 core vendors,” reveals Mr. Upadhye. “That’s how


< Cover Story

I maintain efficiency in my supply-chain.” Even when a new product is launched, the existing vendor is giv-en the first opportunity to produce it; it is only when the vendor is un-able to fulfill the demand that a hard slog begins for a new supplier.

Sole Distribution PartnerMcDonalds’ products are distributed by Radhakrishna Foodland Pvt. Ltd which is the only distribution partner of the fast food chain. RK Foodland manages the four DCs and since it has a transport division, handles the truck movement in the supply-chain right through the country. McDon-ald's expects its distribution partner to meet its standards of ‘cold, clean and on-time delivery ’.

RK Foodland expertly manages the mundane day-to-day activities of the fast food chain like raising purchase orders to suppliers, invoic-ing, keeping an astute eye on work-

ing capital management, timely delivery, payments, etc. “They are like a one-stop shop for my restau-rants,” says Mr. Upadhye candidly. “Anything that is required, from a bulb that needs to be changed in a restaurant to training material, is sourced directly from RK.” There are only two products, buns and Cokes, which are sent directly to the restau-rants. Buns have a limited shelf life, hence they are sent directly to the outlets, while Coca Cola has a well-oiled distribution system which en-sures quick dispatch of its products.

As with its suppliers, McDonald's has no legally documented Service Level Agreements (SLAs) with RK Foodland. The fast food chain care-fully calibrates the performance of its distribution partner, measuring it against its own KPIs to ensure its performance does not dip below its own exacting standards. The DCs are assessed on several factors like

We use the IT technology SAP at our plant."

— Bhupinder Singh,CEO, Vista Processed Foods

Pvt. Ltd

A popular McDonald's outlet at Navi Mumbai, Maharashtra.


< Cover Story

administration efficiency—the to-tal number of cases managed per man hour, warehouse efficiency, overtime as a percentage of the total number of hours worked and in the case of transportation, the number of cases handled per trip, truck uti-lization, etc. McDonald's constantly scrutinizes the performance of RK Foodland against these KPIs; if its distribution partner is unable to meet certain benchmarks, together they devise solutions which would enable them to achieve set goals.

through Cold ChainA marked feature of McDonalds’ supply-chain is that the entire net-work consists of movement of goods through a cold chain. In effect, the suppliers are also a part of this cold chain and in certain cases, for in-stance, the lettuce growers, the cold chain begins with the Tier-2 suppli-ers. “We have the largest refrigerated movement of products in India,” says Mr. Upadhye proudly. An interesting and innovative feature of this cold chain is that the same truck can carry products at different temperatures, ranging from frozen products at -18C to -25C, chilled products from 1C-4C and dry products at ambient tempera-tures. Apparently, McDonald's is the only company whose supply-chain network is characterized by this suc-cessful experimentation.

Vishal Sharma, Vice-President, Operations, RK Foodland, elabo-rates on this experiment: “As the store numbers and distances in-creased, we decided to come out

with a design of a multi-temperature vehicles which could carry all three temperature products. Truck con-tainers were made with two side doors in addition to the rear door. The side doors are used to unload products without disturbing the products in the other temperature zones.” This finesse and attention to detail has helped McDonald's achieve its own USP of ‘quality, standards of service, cleanliness and value.’ It will also help the fast food chain fulfill its own professed target of launching 40 outlets across the country every year!

McDonalds’ efficiency and effec-tiveness are also due to the fact that it has a ‘pull-supply’ chain. The restau-rant issues orders to the Distribution Center which, in turn, routes the order to the supplier and only then does the

supplier produce it. The supplier thus maintains barely any extra stocks; only if there is a contingency, like the overhaul or servicing of machin-ery, will the supplier produce surplus stocks. According to RK Foodland, the fill rate to store is 99.8 percent.

Forecasting DemandEqually impressive is the accuracy of the demand forecasts. The restau-rants give a three-day to one-week forecast to the Distribution Center. The DC, in turn, has a three-month rolling forecast with the suppliers which enables them to plan their production schedules meticulously. For extensive long-term planning, McDonald's has devised the 31Q sys-tem—3 stands for the three years that the fast food chain will keep checking its plans, 1 represents the detailed

n Cold Chain requirement– temperature controlled movement and storage

n Perishability – product shelf life ranging from 5 days to 270 days

n Proprietary recipes and exclusive supplier relation-ships

n Complex planning cycle as most raw material is agriculture based

Unique Features Of Mcdonald’s Supply Chain


times for my trucks and deliveries is pretty much predictable,” points out Mr. Upadhye. With a maximum inventory of ten days in its system, McDonald's maintains an efficient inventory turn ratio of 36.

Food SafetyWhile the mechanics of supply chain is critical, equally important is food safety. McDonald's adheres to the Hazard Analysis Critical Control Point (HACCP) system which en-sures food quality. This is an indus-try level certification which officially approves all the suppliers of the fast food chain. But apart from HACCP, McDonald's has also devised its own food safety systems, the Sup-plier Quality Management Systems (SQMS) and the Distributor Quality Maintenance Program (DQMP). The SQMS is a worldwide mandate for all McDonalds’ suppliers and includes essentials of the HACCP control system, while also contriving several principles of its own. These systems are applicable to processing and

forecast of the next year and Q sym-bolizes the quarterly monitoring of these forecasts. While preparing his annual budget, Mr. Upadhye includes his suppliers in the budgeting proc-ess, briefing them on the new prod-ucts and restaurants to be launched.

Using this information, the suppliers roll out their production schedules. The schedule for the next year is carefully fixed and then stringently monitored. Once the forecasts are closed and the budg-ets fixed, the plan schedules and performances are monitored every quarter, also to ensure that there is no dip in performance.

With 217 restaurants scattered across the country, lead times for delivery assume critical importance. But McDonalds’ supply-chain net-work is everything its cracked up to

be—each cog in the wheel is set pre-cisely in place to ensure spot on dis-tribution. Every restaurant manager knows the exact time of arrival of each product which enables the sup-ply chain team to work backwards to ensure timely distribution.

“I have fixed locations of sup-pliers and restaurants and my own fleet of dedicated trucks and clean-ers,” says Mr. Upadhye energetically, warming up to his subject. “I can predict the amount of time it takes for a product to reach from an X loca-tion to a Y location.” If a truck takes four or five days to travel between a supplier’s premises in Taloja, Ma-harashtra, to Noida in the National Capital Region, dedicated McDon-alds’ trucks will accomplish it in two days due to non-stop running of the fleet. “This ensures that my lead

But McDonalds’ supply chain network is everything its cracked up to be—each cog in the wheel is set precisely in place to ensure spot on distribution.

McDonald's adheres to the Hazard Analysis Critical Control Point (HACCP) system which ensures food quality.


< Cover Story

manufacturing plants. The DQMS audits and checks the warehouses of the chain.

McDonald's trains auditors world-wide on its SQMS and DQMP pro-grams. Independent auditors then audit plants and warehouses and allot scores to McDonalds’ facilities global-ly, thus ensuring that the food leaving its processing plants and warehouses if of the highest safety standards.

tastes Like MacAs critical as safety is the taste of the food products “because a cus-

tomer who is walking into McDon-ald's is not coming to eat certif i-cates!” says Mr. Upadhye bluntly. “He is coming there because he likes the taste of the product.” To keep an assiduous check on the taste of its products, McDonald's runs a Sensory Program. It has a centralized laboratory in Hong Kong which trains sensory experts. Special personnel are nominated both from the suppliers’ and Qual-ity Assurance teams of McDonald's to attend the training program.

Every batch of a food product that gets manufactured at a sup-

plier's plant is checked by an ap-proved sensory panel at the plant. Scores are allotted to the product and only if it scores above a certain percentage, is it shipped out of the factory. Another level of control is that every month members of the suppliers’ and McDonald's Quality Assurance teams select an outlet at random and carefully inspect the quality of the food products. Also, every quarter or half year, members of the management do a ‘product cutting’ with key suppli-ers—fry a product, check its taste

and allot scores—to check if the product scores are moving in the right direction northwards. And lastly, samples of the products that are manufactured in the country are shipped to the central labora-tory at Hong Kong which evaluates the products.

tech ProwessThe supply-chain network of Mc-Donald's, which appears to work effortlessly, is powered by vari-ous IT systems which enhance its effectiveness. “We use SAP,” says Bhupinder Singh, CEO, Vista

Processed Foods Pvt. Ltd, Tier-1 supplier of the chain. Mr Sharma of RK Foodland mentions that “our Distribution Centers are on RAMCO Marshall ERP with Cobra software. These systems are used to directly upload store orders.” At the restaurant level, the fast food chain has in-house developed technologies which track day-to-day sales, enables restaurants to schedule staff and send forecast orders to DCs. “These are our pro-prietary technologies,” remarks Mr. Upadhye. “The next phase that we are looking at is connecting our DCs to our suppliers through these systems.”

Despite ballooning levels of growth, McDonald's added Mcde-livery, an innovative option which delivers meals to the customer’s doorstep. This service has grown at stratospheric levels by more than 400 percent. Mcdelivery was f irst launched in Mumbai and Delhi in 2004. The service is now offered in seven cities in the coun-try. Does it burden the existing supply chain network? Mr. Upad-hye shrugs nonchalantly. “Why should it? It does not add much to our planning cycles. The more I sell, the more economies of scale I get and it helps to keep my supply-chain more eff icient.”

Mr. Upadhye is passionate about the supply-chain of the company, but he now tries to gaze into the prover-bial crystal ball, seeking the future of McDonald's. With its escalating growth, Mr. Upadhye realizes that “we need to add more capacity to our supply chain, but will I be able to do it without creating white elephants? Also, with our supply-chain set to grow, we may need a fifth DC. If so, where? Incidentally, we are working with a software company to opti-mize our network.”

However, despite the maze of uncertainties, the only future of Mc-Donald's is up.

Independent auditors audit plants and warehouses and allot scores to McDonalds’ facilities globally.

32 INDIA| April 2011 | www.logisticsweek.com

PORTS CALL

of

< INDUSTRY REPORT


India is the economy to grow with. The recession a couple of years didn’t really send it under the weather. It bounced back and showed why it had

clocked over 9 percent growth rates for three years in a row before the crunch. Armed with a billion-plus population, backed by a solid GDP, and bustling with a market whose canvas is ever expanding, the growth rate for 2011-12 has been projected at 8.8 percent. This authentic pointer comes from the Centre for Monitoring of Indian Economy (CMIE).

India has a very large domestic market, where the rising demand is a major driver of growth (See Fig. 1).

The abundance of natural resources and a progres-sive manufacturing sector have led to an impetus for external trade. The trade and external sector of the country witnessed heightened momentum due to the growth in exports, increase in capital inf lows and ad-dition in the foreign exchange reserves. In the past decade (2001-2010) India’s merchandise trade in value terms has risen from $95 billion to $467 billion at 19.3 percent CAGR.

India’s maritime cargo trade has taken a signif i-cant upswing, supported by a buoyant economy. The various maritime trade volumes against the GDP in

AVALONConsulting1

India's External Trade in USD Bn (FY 01-10)

21.4%

16.7%

Imports

Exports

CAGR %

India's maritime cargo trade is set to grow stupendously. Apart from container traffi c, commodities that will spur this growth are oil and gas, fertilizer, coal, and iron ore. In a report shared exclusively with LOG.India, Avalon Consulting's K.A. Ramakrishnan, Director, and Parag Risbud- Associate Vice-President analyze the growth coming India's way by tracing the maritime cargo trade.

Figure 1 Source: Department of Commerce


< INDUSTRY REPORT

AVALONConsulting2

In M

n T

GD

P In

Tril

lion

Rs

** GDP shown here is at constant prices at factor cost ( base year as 1999-2000)Figures for the cargo categories include external trade as well as coastal movement figures

Correlation of GDP with cargo categories (FY1997-2010)

Coefficient of correlation

between GDP and each cargo trade value is

high at about 0.9

Source: RBI, IPA , Avalon Consulting Research & AnalysisFigure 2

AVALONConsulting3

Map showing Major and Minor ports in India Cargo Handled* at Major & Minor Ports in India (FY 06 – 10) Mn T)

Note: Includes coastal / EXIM cargo

Source: IPA, Avalon Consulting analysisFigure 3

OIL REFINERY CAPACITIES

value terms over the past decade indicates a high co-relation (See Fig. 2). Indeed, India’s economic growth has closely traced the maritime trade growth.

India is a major maritime nation by virtue of its 7517-km long coastline dotted with 13 major ports and 176 non-major ports (See Fig. 3). It has one of the

largest merchant shipping f leet and is ranked 16th among the maritime countries.

In the last fi ve years, cargo traffi c at Indian ports has shown a growth of around 11 percent CAGR, with total volumes clocking above 800 million tons (mt) in 2010 (See Fig. 3).

Figure 2 Source: RBI, IPA , Avalon Consulting Research & Analysis


Over the years, the government and private companies have created capacity to refi ne crude, and infrastructure to improve market access thus securitizing its supply of crude. Today the country has an installed crude oil refi ning capacity of 184 mil-lion tons per annum (mtpa) spread mainly across the coastline and now extending into the interior (See Fig. 5). India has the fi fth largest oil refi ning capacity in the world.

Of the total ref ining capacity in the country, public sector ref ineries account for 61 percent. Among the private sector, Reliance, after expansion of its facility at Jamnagar, has a ca-pacity of 62 mt making it the largest ref ining complex in the world.

CRUDE OIL SUPPLY India’s imports of crude oil have grown at a CAGR of 10 percent over the last fi ve years (See Fig. 6). Crude oil imports currently account for 78 percent of requirement. Domestic crude oil pro-duction is near stagnant considering the limited exploration po-tential. This has resulted in increased crude oil volumes for the maritime traffi c over the years.

AVALONConsulting4

CAGR

10-11%

7-9%

13-16%

14-16%8%5%

Port Traffic Projections by Cargo (Mn T)

Source: IPA, various secondary sources, Avalon Consulting Research and Analysis, Ministry of Shipping

Note: Includes coastal / EXIM cargo

Shipping min. estimates 2500 to 3000 Mn T traffic at ports in India

by 2020Figure 4

OIL REFINERY CAPACITIES

AVALONConsulting5

Crude oil refinery locations in India

Source: PPAC, MoPNG, Oil and Gas Journal, Avalon Consulting Research & Analysis

- Refinery locations

Panipat12 Mn T

Mathura8.0 Mn T

Barauni6.0 Mn T

Haldia7.5 Mn T

Vizag 8.3 Mn T

Chennai 9.50 Mn T

Narimanam1.0 Mn T

Kochi9.5 Mn T

Mangalore11.82 Mn T

Koyali13.7 Mn T

Mumbai (2)17.5 Mn T

GuwahatiDigboiNumaligarhBongaigaon

7 Mn T

Jamnagar (2)62.0 Mn T

Vadinar10.5 Mn T

Figure 5

Avalon Consulting estimates that cargo traffi c at ports in India will touch 1,000 mt in FY2012 and by FY2015 it will cross 1400 mt (See Fig. 4). Petroleum, Oil and Lubri-

cants (POL), iron ore, coal and containers will account for a signifi cant share of the future trade growth.

The ensuing pages evaluate these key commodities.


< INDUSTRY REPORT

AVALONConsulting6

Crude Oil Supply in India, FY 06-10, In Mn T

131.6145.5

155.8 161.7CAGR

10%

1.1%

12.5%

193

Source: MoPNG, Avalon Consulting Research and Analysis

Domestic crude oil production is

almost stagnantFigure 6

AVALONConsulting7

Source: Company Reports, MoPNG, Avalon Consulting Research and Analysis

Production of POL , Mn T (FY 06-10)

6.9%

5.4%

5.6%

EXIM Scenario for POL Products, Mn T (FY 06-10)

149.6150.5144.9135.2

119.7

Figure 7 On the other hand, production of POL has increased from approximately 119 mt in FY06 to about 150 mt in FY10 (See Fig. 7a). Refi ning capacities in India has mainly been dominated by the middle distillates demand.

A domestic surplus in other products has led India to export POL products. Since FY2006, POL exports have in-creased from 10 mt to about 36 mt in FY2010 at a CAGR of 37 percent. A continued economic growth is expected to drive do-

mestic consumption of POL products. Avalon Consulting estimates POL demand to reach approximately 250 mt by the turn of this decade.

In spite of a rise in demand, the next decade will see an addition of only about 70 mt of ref inery capac-ity, while export and import of POL is likely to remain curtailed to about 30-50 mtpa.

However, import of crude oil will continue rising to reach 237 mt by 2020.

Figure 7a Figure 7b

Source: Company Reports, MoPNG, Avalon Consulting Research and Analysis


< INDUSTRY REPORT

FERTILIZERS: IN SHORT SUPPLY GAS SUPPLY: LARGELY UNTAPPED

AVALONConsulting10

154

200

91

133

Source: Ministry of Petroleum & Natural Gas, XI Five Year Plan, Avalon Consulting Research and Analysis

Figure 10

Gas Supply – Demand Scenario, in MMSCMDDomestic Gas Supply Scenario by company,

In MMSCMD

Natural gas is used as fuel and as feedstock depend-ing on the end-user industry. A scarce resource, its al-location is worked out by the government of India. The potential for growth of the natural gas market in India is tremendous; however, this is a highly price sensitive market as the ability of customers to pay differs from sector to sector. Power generation and fertilizer compa-

nies are its main consumers. As fertilizer production is subsidized by the government, they have little ability to absorb higher prices.

Recent reforms have brought more private investors in the upstream and downstream sectors, but a more transparent regulatory framework will be critical to in-centivize future private investments. According to Inter-

AVALONConsulting11

Source: Bloomberg, Petronet, MoPNG, Avalon Consulting Research and Analysis

2015-16(P) 2009-10 E

Gas Supply – Demand Scenario, in MMSCMD

Demand Domestic Imports

Figure 11

national Energy Agency (IEA), the Indian gas market is expected to be one of the fastest growing in the world over the next two decades.

By 2015-16, it is estimated that India will require about 500 MMSCMD of natural gas, for which the indig-enous supply sources will be insuffi cient (See Fig. 8a).

In the 1990s, in order to address the ensuing sup-ply shortfall, the Indian government passed some re-forms to encourage domestic production and the con-struction of liquefied natural gas (LNG) terminals. ONGC and GAIL are also present in the LNG sector through their participation in Petronet LNG Limited, a joint venture of GAIL, ONGC, IOCL, Bharat Petro-leum (BPCL), GDF Suez, and the Asian Development Bank (ADB).

In order to bridge the demand-supply gap, LNG is im-ported into India. This is expected to increase in future. Linkage with the exporting countries is very critical for success of LNG imports. Geographically, India is strate-gically located relatively close to four of the world's top fi ve countries in terms of proven gas reserves, viz. Iran, Qatar, Saudi Arabia and Abu Dhabi.

Figure 8a Figure 8b E=Estimated

Source: Ministry of Petroleum & Natural Gas, XI Five Year Plan, Avalon Consulting Research and Analysis

Figure 9 P= projected

Source: Bloomberg, Petronet, MoPNG, Avalon Consulting Research and Analysis


FERTILIZERS: IN SHORT SUPPLY

India has emerged as the third largest producer of nitrogenous fertilizers. The sector is regulated by government policies administering the price and production. The tremendous demand for fer-tilizers has seen the country invest largely in the public, cooperative and in private sectors.

At present, India has more than 57 large sized plants of fertilizers, manufacturing wide assort-ment of fertilizers. India will continue to be a major importer of raw materials, intermediates as well as fi nished products.

Urea and di-ammonium phosphate (DAP) will continue to dominate production. Fertilizer industry demand drivers will result in not only a boost to the domestic fertilizer supply but also lead to increasing imports (See Fig. 10). Imports are estimated to rise to about 24 mt by FY2020.

India's foodgrain requirement to feed an es-timated population of 1,400 million by 2025 will be 300 million tonnes (of mainly rice). Of course, there will be a corresponding increase in requirement of other crops such as cotton, sugarcane, fruits and vegeta-bles. The increase in production will have to come from

an increase in yields as there is limited scope for increas-ing cultivated area. There is potential to increase them through the use of fertilizers (See Fig. 11a).

Production of fertilizers, particularly Urea more than 66% depend on natural gas as against 30% on naptha and 4% on fuel oil for feedstock

Natural gas prices have risen to INR 7500 per MnBTU from the earlier Rs 3200 Mn BTU leading to rise in fertilizer prices

Shortage in natural gas supply of about 14 mmscmd currently adds to the woes

High natural gas prices

Shortage of Phosphate rock and Sulphuric acid supply makes domestic production of phosphaticfertilizers difficult, necessitating imports of phosphoric acid or phosphatic fertilizers

Potassic fertilizer raw materials need to be imported only

Unavailability of FRM

Rising foodgrain consumption and production has fuelled demand for fertilizers. Domestic foodgrainproduction target is set at 320 mn T by FY12

Rising food grain production Low consumption of fertilizers

Food Grain Production

Comparison of Nutrient Consumption / hectare

Low consumption provides players

opportunities to utilize the demand

Figure 13

AVALONConsulting14

Consumption of Fertilizers, Mn T (FY 11-20)

Import of Fertilizers, Mn T (FY 11-20) AVALONConsulting14

Consumption of Fertilizers, Mn T (FY 11-20)

Import of Fertilizers, Mn T (FY 11-20)

Figure 11a Figure 11b

Source: Department of Fertilizers, Avalon Consulting Research and Analysis

AVALONConsulting12

Fertilizer trends in India (FY01 – FY10) Mn T

Source: Department of fertilisers, Avalon Consulting analysis

CAGR %

4 %

1 %

21%

Figure 12Figure 10Source: Department of Fertilisers, Avalon Consulting Analysis

GAS SUPPLY: LARGELY UNTAPPED


< INDUSTRY REPORT

IRON ORE: HUGE EXPORT OPPORTUNITIES

India has managed to sustain its share in world iron ore exports at about 10 percent till 2009.

In 2010, iron ore ex-ports were about 91 mt and this fi scal it is ex-pected to touch 100 mt. The stagnated growth has been due to recent bans on iron ore exports from Karnataka and im-ports into China (See Fig. 12). These are con-sidered to be temporary blips causing a dip in FY11/FY12.

There is no immedi-ate concern about iron ore resources turning out to be a constraint for growth of domestic steel industry. Steel produc-tion capacity is estimated to increase by 10-12 per-cent CAGR till 2020. The Indian Council for Research on International Economic Relations (ICRIER) es-timates that even with about 100 mt of continued annual iron ore exports, the existing reserves would sustain domestic steel production requirement for decades.

Hence, it is estimated that in the medium to long term, iron ore exports from India will pick up pace and reach about 200 mt by the turn of the decade (See Fig. 13).

Iron ore consumption in the country falls far short of production. Orissa, Chhattisgarh, Karnataka, Jharkhand and Goa are the major iron ore producing states in India. In the absence of adequate domestic demand, iron ore f ines are being largely exported. Blast furnaces in India use sinter and lumps as feed-stock. The proportion of sinter (and also pellets) used in blast furnaces in India has been increasing due to favourable economics.

Apart from the fact that there is not adequate sinter-ing or pelletising capacities in India to take care of the surplus of fi nes, utilization of capacity in the sintering and pelletising plants has been lower compared to the iron making facilities.

There is a regional imbalance also in respect of pro-duction of fi nes and the total agglomeration (sintering AVALON

Consulting17

and pelletisation) capacities. This is prominent in the East and the South Western part of the country. This leaves no other option but to export these fi nes.

Country Wise Split Of World Iron Ore Exports, Percentage, Mn T ( 2002-09)

Source: TradeMap, Avalon Consulting Analysis

540 561 640 739 765 829 844 946

Figure 16Figure 12

Source: TradeMap, Avalon Consulting Analysis

Figure 13

Source: Avalon Consulting Analysis

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< INDUSTRY REPORT

CONTAINER TRAFFIC: SOME GOOD DEALS

Coal Supply in India (FY06 – FY 10E) (Mn T)

407

535

68

113

FY 06 FY 10EProduction Imports

475

648

13.5%

7%

CAGR %

Source: IDFC-SSKI, Avalon Consulting Analysis

India has 13% of world’s recoverable coal reserves but

contributes only 8% to global production

Figure 18

COAL: MORE DEMAND THAN SUPPLY

The coal sector faces a unique impasse. While the country has 13 percent of global coal reserves, its production share languishes at 8 percent. The ex-isting problem of supply constraints is now well recognized in government corridors but a sense of urgency to address the bottlenecks is still miss-ing. As demand for coal accelerates, supply needs to keep pace to achieve fuel security for key user industries – power, steel and cement, and thereby meet the GDP growth targets (See Fig. 14).

With recoverable reserves of 106 billion tons, coal is one commodity that India has in abundance. However the rising demand is not being met by do-mestic supply resulting in increasing reliance on imported coal. The sector is likely to see signifi cant economic reforms considering that the demand-supply defi cit will hamper GDP growth.

India’s coal supply has risen at 8 percent CAGR in the last decade. Imports have accounted for 17 percent of the supply in 2010.

The demand for coal will largely be driven by the power and steel sector (See Fig. 15). Supercritical turbines and ultra mega power plants (UMPP’s) will characterize power generation capacity additions in the coming decade. High quality coal (high calorifi c value) will be much sought after. Many of these plants will be based near ports to take advantage of the imported coal.

Indian fi rms are establishing themselves in coal producing countries like Indonesia and South Africa to secure coal supplies. As per Avalon estimates, coal demand from thermal power plants will rise to 1,000 mt by 2017.

Demand for coal from the steel industry is also likely to rise in line with capacity additions. Blast Furnace is the preferred route for most ex-

Figure 14

Source: IDFC-SSKI, Avalon Consulting Analysis

Break-up of coal demands by user sector

India meets more than half of its energy needs from coal

FY 2007

FY 2012E

FY 2017E

Figure 19Figure 15


pansions and one that uses coking coal. Coking coal domestic production is limited and hence import reli-ance will rise.

By 2017, demand for coal will rise to about 1.4 billion tons. Imports in future can only be constrained by inad-

equate port capacity. In the backdrop of a looming domestic supply cri-

sis, a lot of Indian companies have attempted to secure long-term coal supply through buying coal companies / stakes abroad.

CONTAINER TRAFFIC: SOME GOOD DEALS

Over the last 10 years, container traff ic has increased at a CAGR of around 13 percent touching close to 8 million TEUs in 2010. A vibrant Indian economy will see container traff ic likely to touch 23 mn TEUs by 2020 (See Fig. 18). Development of ports will be a key driver for cargo growth.

Coal demand estimates in India (Mn T) Coal Scenario in India (Mn T)

737

1376

FY 12 FY 17

?

Source: IDFC-SSKI, Avalon Consulting Research & Analysis

737147

590

1376

700-800

Production

Deficit

Deficit

Production

DeficitProductionDemand

Figure 22Figure 16a Figure 16b

Source: IDFC-SSKI, Avalon Consulting Research & Analysis

9-11%9-11%

Typical volume Split of Container Trade in India by Broad Categories in Recent Years (Indicative)

0-1%1-2%

10-11%

20-22%

Source: Department of Commerce, MOSPI, Avalon Consulting Research and AnalysisFigure 26Figure 17

Source: Department of Commerce, MOSPI, Avalon Consulting Research and Analysis AVALONConsulting34

Source: IPA, JNPT Business Plan, Avalon Consulting Research and Analysis

Estimated All India Container Traffic Trend Mn. TEUs (FY011-FY20)

CAGR = 13%

CAGR = 10%

Growth in container traffic will taper down in the 2nd

half of the decade

Figure 30 Figure 18

Source: IPA, JNPT Business Plan, Avalon Consulting Research and Analysis

At the same time, FDI in India touched $37 billion in 2010. The country is viewed as a sourcing hub by international MNCs which augurs well for exports. Several Indian businesses expanding overseas will also look to India for sourcing.

Today India is establishing and consolidating its presence in the global manufacturing arena (See Fig. 19). India has been ranked second in terms of manu-facturing competence in a global survey in 2010.

COAL: MORE DEMAND THAN SUPPLY


< INDUSTRY REPORT

India’s growing and aspiring middle class is set to drive domestic demand for high-end goods by transforming its consumer market.

Logistics cost reduction through port infrastructure development will impact trade volumes. Some of the fac-tors will be: Capacity to handle large vessels for coal and iron ore,

thus improving competitiveness for EXIM trade. Effi ciency of cargo handling at ports.

Direct sailing for container vessels. Higher drafts enabling larger vessels. Warehousing infrastructure at and around ports.

High economic growth and external trade momentum in India will be sustained due to the government’s focus on infrastructure development (See Fig. 20). With the PPP model in focus, the increasing private participation will lead to greater opportunities for private players.

In the coming decade, maritime opportunities could be

AVALONConsulting35

Infrastructure investments in XI th Plan (2007-2012)

XIth Plan – USD 514 bn

XII th Plan from (2012 to 2017) will double the

Infrastructure spend to USD 1025 bn

Figure 31AVALONConsulting35





Figure 31

geographically more dispersed with development of various indus-tries: New production centers are being built with refi neries, power

plants, etc. coming up in various states. Industrial cluster and SEZ development program. Development of mega-cities and townships. Road and rail connectivity infrastructure will bridge the gap

between rural and urban centers.The good news in all this is that a multitude of maritime in-

frastructure and logistics opportunities await investors in the coming decade.

AVALONConsulting31

Source: 2010 Global Manufacturing Competitiveness Report, US Competitiveness Council

Current Manufacturing Competitiveness rating, 10=High, 1= Low

Labor & Material cost

Talent driven innovation

Energy cost and policies

Economic, trade, tax systems

Quality of physical infrastructure

Investments Regulatory system Local business

dynamics

Competitiveness drivers

Figure 28 Figure 19

AVALONConsulting35





Figure 31

Figure 20

Avalon Consulting is a leading Strategy & Management Consulting fi rm in India. The fi rm has over two decades experience in the Ports, Maritime and Logistics domain in India and outside.

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• Need for Mechanization at Indian ports

• Draft Constraints (which hinder entry of

large vessels to most major ports)

• The Policy Conundrum

• Regulatory Issues (The TAMP Factor)

• Labor Management at Ports

• PPP: Challenges and Opportunities

• Major and Non-Major ports: Lessons to

be Learned

warehousing

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• Need for Mechanization at Indian ports

• Draft Constraints (which hinder entry of

• The Policy Conundrum

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• Labor Management at Ports

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warehousing

HANDBOOK

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Ports of India HANDBOOK

JNPT MaTerial HaNdliNg? gaTeway TerMiNal iNTerNaTioNal

PrivaTe liMiTed iNdia gaTeway TerMiNal PrivaTe liMiTed PSa

SiCal TerMiNalS liMiTed CHeNNai CoNTaiNer PrivaTe lMiTed

viSakHaPaTNaM MuNdra PorT kriSHNaPaTNaM PorT kolkaTa PorT

MuMbai PorT abg kaNdla PorT MarMugao PorT New MaNgalore

koCHi PorTkaraikal PorT digHi PorT dHaMra PorT PiPavav PorT

Haldia PorT ParadiP goa TuTiCoriN JNPT MaTerial HaNdliNg?

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TerMiNal PrivaTe liMiTed PSa SiCal TerMiNalS liMiTed CHeNNai

CoNTaiNer PrivaTe lMiTed viSakHaPaTNaM MuNdra PorT

kriSHNaPaTNaM PorT kolkaTa PorT MuMbai PorT abg kaNdla PorT

MarMugao PorT New MaNgalore koCHi PorTkaraikal PorT digHi

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The express courier market has come a long way from merely delivering letters. Building extensive infrastructure, offering value-added services, and now jumping on to e-commerce are some of the hallmarks that differentiates this sector, says Jayashree Mendes.


ForNee

SpeeThe D


The express courier services segment is burdened. Not under the weight of the

parcels or cargo they carry, but various regulations, not to forget the competition from relatively unknown or smaller players. Possibly it is these hurdles that has driven this industry to grow annually at 20-25 percent per annum. It is also estimated that the organized courier industry is worth `10,000 crore.

Since the 1980s when the early courier companies established themselves in India, the sector has made such huge strides it has super-seded the local post office. It is fash-ionable to send letters by courier, and have the courier boy pick up your parcel/letter, thus avoiding that trip to the post office. The popularity has not come easy. Explaining how cou-rier companies have gained ground, O.P. Rajgarhia, Chairman & Manag-ing Director, Overnite Express Ltd., says, “Organized courier companies have had to create their own net-works in remote cities, deploy exten-sive technology, build value-added services, create new verticals, invest in fleet, and importantly, offer time-definite delivery.”

The success of a few large com-panies have triggered entrepreneur-ship among many others, though on a smaller scale. Today there are about 2,200-2,400 courier companies in In-dia, employing 1.2-1.4 million people directly and indirectly. Of these, only about 25-30 companies fall in the organized sector and account for 70 percent of the total revenue. Consid-ering that this sector has high entry barriers, not to forget how lucrative it is, the organized courier companies constantly look to up the ante through services, price, distribution networks and promotions.

How They MoveExpress courier and delivery com-panies manage their services using air, road, and rail transport. Explor-

Neeing new markets and venturing into remote locations like tier-2 and tier-3 cities is a constant endeavor with most companies. R.S. Subramanian, Country Head, DHL Express India, points out, “There are huge untapped opportunities in the smaller cities as they contain small-and-medium en-terprises (SME) and manufacturing locations of medium and large com-panies.”

Since warehouse facilities and transport depots of companies are also based in the smaller towns, it makes sense for courier companies to expand into these locations.

Reaching out in these locations depends on the category of the cou-rier company. Arpita Mukherjee, Pro-fessor, Indian Council for Research on International Economic Relations (ICRIER), an autonomous, policy ori-ented, not-for-profit research insti-tute, says there are four categories of players in the market. The four large global integrators like DHL, TNT, FedEx, and UPS carry high-value consignments and documents inter-nally and internationally, have vast logistics networks and infrastructure in terms of own aircraft, dedicated gateways for custom clearance, glo-bal networked IT and scanning sys-tems, etc.

The large Indian companies are mainly focused on the Indian mar-ket through a wide network and service select international loca-tions. They may not have dedicated gateways and aircraft, but they make up by covering a wide spec-trum of the domestic market and are the main competitors for the global integrators.

Regional players are riveted in regions where they are based and compete directly with the large In-dian companies where they have a common presence; and the smaller companies are the local courier serv-ice providers delivering mainly let-ters with lesser risks to take as their investments are small.

Offering More For LessCourier companies distinguish them-selves by the services they offer. An exclusive and faster service offers an edge over competitors, both large and small. Shantanu Dutta, Country Man-ager, OMX (Express Division of Om Logistics Ltd.), says, “The clientele for organized and the unorganized play-ers are different. This does not mean that a corporate client won’t make use of both. He might use the large

Delays at ports cause cargo delivery bottlenecks, airports are hampered by inadequate parking bays and sluggish customs clearance leading to undue delays."

— Kenneth Koval,VP(India Operations), FedEx

Express

n The Indian courier industry is valued at `10,000 crore.n Of the 2,200-2,400 courier companies in India,

only 25-30 companies form the organized sector and account for 70 percent of revenue.

nThe industry employs 1.2-1.4 million people directly and indirectly.nIncreasing use of technology platforms is trigger-

ing online transactions and quicker deliveries.nPoor infrastructure continues to be a sore point for

all express courier and delivery companies. nE-commerce is what most companies are looking

at for the near future.

Highlights


< FeaTure

company for precious documents and cargo and the small courier company for mass mailers.”

Companies offer various val-ue-added services that could be unique to them or the beginning of a trend. For instance, Mr. Sub-ramanian speaks of DHL Express’s Express 9:00 and 12:00, a service launched in Kochi and Kolkata and one that promises to deliver the shipment the next business day. A new offering is Jetline, ca-tering to mission-critical interna-tional shipments, mainly pharma and FMCG, which need immediate pick-up and door-to-door delivery within a 48-hours time frame. Of-fered across over 220 countries, Jetline comes at a premium.

Value-added services differ from company to company. FedEx’s value-added offerings for domestic services range from Collect on Delivery where a recipient can make payment to the shipper in 6-7 days on receiving the

shipment. Other services include De-livery on Invoice Acceptance, Freight on Value (Transit Insurance), Freight to Collect, and Hold at Location.

Innovative services are tailor-made to suit the client’s requirements. Mr. Rajgarhia says, “At Overnite, we vol-unteer reverse logistics, Mobile Ex-press, Passport Express, specially designed strong box for carrying ship-ments safely, multi-location pickup with centralized billing, and specially designed pouches for tea samples, among others.”

Some services get more unique by nature. Abhik Mitra, Managing Director of TNT India manages es-calation services for automated teller machines (ATMs), undertakes returns for the telecom industry, and conducts specific clinical trial movements.

The well-connected organiza-tions also offer online tracking, various web-based solutions to suit clients’ requirements, and cost-ef-fective line haul.

Harsh DoP ProposalsCourier companies face challenges inherent to them. A core issue is the decision of the Department of Posts (DoP) to amend the outdated Indian Post Office Act, 1898, and draft a new one. The announcement made in 2006 caused a huge outcry. The bill pro-posed the following changes:n A price and a weight multiple will be used to define a letter. The bill stat-ed that if private players want to oper-ate in the ‘letter’ segment below 150 grams, they will have to charge five times the minimum postal tariff for normal delivery of documents and 2.5 times the speed post/express delivery rate for express delivery.nA universal service obligation (USO) fund will be set up to which private service providers with a minimum turnover of `25 lakh per annum would contribute 10 percent of their revenue.nAn FDI cap up to 49 percent will be imposed.nA regulatory authority will be set

up, although its role was not clearly defined.

Ms Mukherjee says, “Courier companies realize that the regula-tions brought out by the DoP would not favor them. The regulations, if passed, would have affected every-one. While large companies garner a major part of their revenue from corporate or government business, it is the smaller companies that rely on SMEs and individuals.”

A daily challenge for companies are the delays caused by poor infrastruc-ture. It is common knowledge that trade and logistics growth in India has not kept pace with infrastructure de-velopment, thus resulting in high cost of logistics. Kenneth Koval, Vice-Presi-dent (India Operations), FedEx Express, says, “While delay at ports cause cargo delivery bottlenecks, airports too are hampered by factors like inadequate parking bays and sluggish cargo han-dling/customs clearance capabilities which lead to congestions and undue delay in clearance of goods. Poor cargo warehousing facilities and the lack of multimodal links for local distribution are also factors that constrain air cargo operations in the country.”

A significant challenge for cou-rier companies is delivering/receiv-ing shipments right to/from a cli-ent’s doorstep. While transport by air takes care of long distances and timelines and ports have high turna-round times, rail and road transport brings its woes. As a convenient and cost-effective mode, the railways although popular for bulk freight transportation, have lost out to road transportation due to connectivity and limited access to towns. Ship-ments going by road can be delayed at check-nakas due to various taxes and permits.

What’s NewGlobalization and the growing role of technology have played an impor-tant role in expanding scale of opera-tions of courier companies. A report

We manage escalation services for automated teller machines (ATMs), undertake returns for the telecom industry, and conduct specific clinical trial movements.”

— abhik Mitra,Managing Director, TNT India


brought out by ICRIER-Indian Insti-tute of Management Calcutta (IIMC) in Q3 2010 states that for some years now the express courier and delivery companies “have seen a large number of mergers, acquisitions and strate-gic alliances. In certain markets, es-pecially the larger countries in terms of geography, global express compa-nies have local partners, subsidiar-ies or affiliates to help them to build their networks and expand their scale of operations. Collaborations, strategic alliances and tie-ups have not only led to a major consolidation of the sector but have also made the ownership pattern of the industry quite blurred.”

A recent consolidation in the market was the FedEx takeover of AFL. Mr. Koval says, “As India emerges a key growth economy on a global platform there is a need for global standard logistics services in order to effectively integrate Indian enterprises with the global econo-my. This is fuelling globalization and consolidation within the indus-try with the entry of global players as well as mergers and acquisitions in the Indian market.”

An emerging trend is the broad-basing of service and product portfo-lios of express companies. Compre-hensive portfolios cover an array of services ranging from express serv-ices, ground services, value-added services, warehousing, 3PL, etc. Glo-balization and the rapidly evolving demands of industry is driving the use of technology in operations, in order to improve efficiencies and offer en-hanced value added services.

As online transactions become popular and convenient, the demand for e-commerce is also increasing. Mr. Rajgarhia says, “Prompt, faster and safe mode of transactions and customer delight are being offered by private players which is fast catching up the demand.”

Additional infrastructure also means investing in logistics parks.

Vineet Kanaujia, General Manager (Marketing), Safexpress, says, “We already have 15 automated logistics parks in place, and are setting up 17 more. Our infrastructure enables us to promise clients quick deliveries.”

A majority of large corporates in FMCG, apparels, auto-components, consumer electronics, pharmaceu-ticals, etc. have moved from ordi-nary road freight to time definite door-to-door delivery (TDDD). Ac-cording to Mr. Subramanian, “In the long run, except for the bulk time-insensitive items, the rest would move to TDDD. Another discernible trend is that gradually TDDD companies are evolving into supply chain and logistics manage-ment service providers.”

With significant growth in life sciences and healthcare products in Asia, Temperature Controlled Logis-tics (TCL) is an important product of-fering for this vertical. Blue Dart has chalked out plans to offer TCL in 53 Origin Destination (OD) pairs soon.

In the last few years, the de-mand for world-class logistics and warehousing facilities has grown tremendously. This is opening up a whole new world of opportunities in distribution from mobile phones, credit cards to pharmaceuticals and auto components.

How They rateIt’s not enough for express delivery and courier companies to provide ad-equate coverage or be technology-sav-vy. Companies need to rate themselves on various parameters to gauge the level of services they offer.

Some common parameters used by large players are reliability, ef-ficiency, tariffs, tracking facility, flexi-timings, pick-up on call, deliv-ery time, and delivery coverage. Mr. Rajgarhia says, “Indian companies also need to ensure prompt deliver-ies within the turnaround time, data updation and promise a safer and faster mode of transportation.”

A discernible trend is that gradually time definite door-to-door companies are evolving into supply chain and logistics management service providers.”

— r.S. Subramanian,Country Head, DHL Express

India

The FutureExpress courier is not confined to letters and cargo alone. Compa-nies are offering customized solu-tions for aviation and aerospace, the technology industry, automo-tive, fashion, and healthcare sec-tors as well.

The main drivers that will fuel the growth in the logistics market include the upcoming freight cor-ridor project, building of logistics hubs and warehouses, port develop-ment, technology upgradation, in-vestment by private players and also the impending industry status for the logistics sector.

The Indian logistics industry is poised for a significant leap forward in the years to come. Factors like the proposed introduction of common Goods Sales Taxes (GST) will create a favorable environment for the express courier and delivery industry, and the entire logistics industry.

50 INDIA|May 2011| www.logisticsweek.com

< primer

Cross-docking Roll-On/Roll-Off

Continuous Replenishment

Back to Basics

Cross-docking is a process whereby goods that are re-

ceived for shipment are imme-diately reshipped. This enables minimum handling and also eradicates the need for storage. Cross-docking thus helps de-crease costs and facilitates the smooth, fast flow of goods from the origin to destination.

Wal-Mart effectively uses cross-docking to leverage their logistical volume. They operate an extensive satellite network of distribution centers serviced by company owned trucks which send point of sale (POS)

data directly to 4,000 vendors. To ensure continuous communication between all the parties involved, each register is directly connected to a sat-ellite system sending sales informa-tion to Wal-Mart’s headquarters and distribution centers.

Ro l l - o n / r o l l - o f f (RORO or ro-ro)

is shipping vessels de-signed to carry wheeled cargo such as auto-mobiles, trucks, semi-trailer trucks, trailers or railroad cars using built-in ramps which conven-iently allow the cargo to be rolled on and rolled off the vessel, on their own wheels.

The ramp is opened when berthed at port and folds up and forms a part of the regular bulkhead of the ves-sel when sailing. The ramps are made towards either the stern of the ship (backside), on the bow side (front), or on the sides.

The direct driving-on and driving-off of cargo ena-bles shippers to load cargo on the chassis, trailer and low-boy at the plant or warehouse site, transport the vehicles to embarkation points and have them loaded directly onto the vessel, reducing the number of times cargo is handled drastically.

Continuous replenishment is the practice of replen-ishing products based on actual and forecasted

product demand. It is based on the principle of ‘pulled’ logistics, where stocks at a warehouse are replenished on the basis of information about sales and other fac-tors necessary for efficient replenishment in the supply chain. In simple terms, once the sales register displays a need for products an appropriate order is placed at the warehouse and then delivered.

With continuous replenishment, the number of re-plenishments of a store decreased from 50 to 35 per week. The number of orders increased from 1,350 to 4,000 per week. The costs were compensated by reduction on trans-port costs and decrease of out-of-stock sales.

Overall equipment effectiveness (OEE) is a hierarchy of metrics

which evaluates whether a manufac-turing operation is utilized to its best. Results obtained from an OEE analysis are stated in a generic form allowing comparison between manufacturing units across differing industries.

The six metrics that comprise the OEE system measure various aspects like total effective equipment perform-ance (TEEP), taking into account ma-chine availability and performance as well as output quality.

As an example, a manufacturer was having difficulty in processing orders because there were several bot-tlenecks on the shop floor that caused downstream shortages and material backlogs. And he could not afford to

purchase more high value assets. In-stalling the OEE software helped iden-tify hidden capacity and improve pro-ductivity of the existing machines.

Through OEE data collection, real OEE efficiencies were calculated and information gained was used to make fundamental adjustments to proc-esses. The result was a marked 10-50 percent improvement in productivity at the machine level, and an overall 25 percent improvement in productivity at the plant level.

OEE helps companies from making inappropriate purchases by making them focus on improving the perform-ance of existing machinery and plant equipment before purchasing new ones. This ultimately contributes to in-creasing a company’s return on assets.

In this section, we revisit some basic concepts – everyday logistics and supply-chain terms that need a brush up (or update) every now and then.

Can you help us with more such terms – used everyday but seldom revisited? Please mail your suggestions to [email protected]. If chosen, we will be happy to publish your suggestion with due credit.

Overall Equipment Effectiveness (OEE)


< pAnoRAMA

Best Practices In ManufacturingIn their book, the authors, Jacobs, Berry,

Whybark, and Vollman, provide a compre-hensive real world based view of the tools, con-cepts, and processes used to control and man-age manufacturing systems.

The book aims at explaining methods to im-prove supply chain effectiveness, productivity, customer satisfaction, and profi tability based on the vast knowledge the authors have accu-mulated over years of experience on the fi eld. The book offers comprehensive preparation for the Certifi ed in Production and Inventory Man-agement (CPIM) exam with plenty of practice exam questions and detailed case studies.

In-depth coverage of manufacturing plan-

This book is Dudbridge’s attempt to provide information and ideas for those working

in food manufacturing. Dudbridge offers a fresh and modern out-

look at best practices, which points in the way to fewer breakdowns, reduced quality faults, improved teamwork and increased profi ts. With a dedicated focus on operations manage-ment and new process development, the book is complemented by numerous practical exam-ples drawn from the industry.

Dudbridge has adopted a conversational style and questioning approach which serves as a good interface for food manufacturers

guide to supply chain ManagementBy Colin Scott, Henriette Lundgren, Paul ThompsonPublisher: SpringerPrice: `2,300

Manufacturing planning And control For supply chain ManagementBy F. Robert Jacobs, William Berry, D. Clay Whybark and Thomas Vollmann Publisher: McGraw Hill ProfessionalPrice: `3,600

Handbook of Lean Manufacturing In the Food IndustryBy Michael DudbridgePublisher: Wiley Price: `3,400

OFF THE SHELF

ning and control (MPC) best practices and the latest research gives a competitive advantage in today's global manufacturing environment. Each chapter in the book follows a pattern of detailed technical presentation, followed by ex-amples of company implementations and con-cluding principles.

life case studies for best practice.This book serves as a guide to understand

the specifi c dynamics of the supply chain and the fundamentals underpinning it. It also provides the framework for delivering a sup-ply chain strategy based upon recognized best practices.

who are seeking solutions to fundamental issues.

The book is also intended for people em-ployed in the wider food industry, particularly, factory operations managers and training teams who are looking for resources to help with lean manufacturing implementations.

A Ready Reckoner

Freshly Served

“Guide to Supply Chain Management” is an attempt to bring supply-chain

theory to life. Written for people with a busi-ness interest in supply-chain management, the book covers topics like planning, sourc-ing, delivering and returning. It also discuss-es strategy, people, fi nance, customer service and outsourcing.

Each chapter starts with a brief summary and learning objectives that guide the reader through the text. The book features a variety of fi gures, tables and recommended further readings. The chapters conclude with real-


Best Practices In Manufacturing

ResouRce centeR Journals, Case Studies, Research Reports

Ultrasonic Contact Rail Testing By CATER

The Center for Advanced Transport En-gineering and Research with their paper aims at providing an understanding of the realistic testing limitations associated with the contact Ultrasonic Testing (UT) method used for in situ rail testing.

The document is semi-technical in na-ture for the engineering and maintenance staff having rail maintenance experience and knowledge and implement UT inspec-tion at their rail networks.

Every testing method has restrictions on what can be tested. Rail contact UT by wheel probes (WP) is no exception. For bulk, in-situ rail testing equipment the major part of the rail testing is without restrictions in testing. The frequency and occurrence in rail testing problems from these conditions is mostly rare. In modern networks the re-strictions may only apply to 0.1 percent, 1

km in total length in 1,000 km of track.The most common restrictions come

from the surface conditions of the rail. There are two broad groups of these, top surface and subsurface. When the ultra-sonic signal can't pass through the surface of the rail successfully then it cannot pen-etrate the rail to check for flaws. Also, the rail shape may limit the ability to correctly couple in the ultrasound, or transfer and transmit it successfully. Search Tags: Ultrasonic Rail Testing, CATER

Airport Perimeter Security By Future Fibre Technologies

A familiar scene at any airport today is peo-ple removing shoes, keys, laptops, liquids and aerosols in order to pass through secu-rity check points.

While most would agree that these secu-rity precautions are necessary, it should also be noted that this should never be consid-

ered the total security picture.Outside the terminal, perimeter security

is both a fundamental and critical aspect of any airport security strategy. An entire airport perimeter is too large a distance for regular foot or vehicle patrol to cover ef-fectively. The flight line, apron, tank farm, maintenance and sub-staging areas present a security risk that cannot be countered by simply placing security staff on the ground. To provide effective round-the-clock cover-age, advanced intrusion detection systems have become the only answer.

This paper addresses some of the com-mon points of intrusion and how they can be dealt with. Future Fibre Technologies also evaluates the use of a diverse range of intrusion detection technologies avail-able for airport perimeter security, varying greatly in the effectiveness, affordability and accuracy.Search Tags: Airport, Perimeter, Security, Alec

Owen, Future Fibre, Technologies

Heating up supply chain AnalysisBlogger: Bill DuBoisIn his blog, DuBois questions the continued use of tools for supply-chain analysis that are “frozen.” Even after being “frost bitten” by the lack of flexibility when it comes to analyzing and responding to both planned and unplanned events, the heat does not seemed to get turned up on the existing tools.

He refers to the SCOR Upside Supply Chain Flexibility measure described as the amount of time it takes a supply-practice to respond to an unplanned 20 percent increase in demand without service or cost penalty. This begins with knowing about the change, understanding the risk involved, and determining the best way to respond to the change.

Your ERP system may give you most of the data, but some customer and supplier data may still exist outside ERP.

Of course, the other popular option is Excel. It may be easier to get data into Excel but it is unlikely you would have all of it. The analytic piece of the equation is the most difficult to replicate in Excel. The one advantage of Excel over ERP is that it tends to be easier to use. search tags: flexibility, bill DuBois, heating supply-chain

six Lessons Learned From six Failed software ImplementationsBlogger: Duncan KlettWhile most employ technology to streamline and optimize operations, it need not always go as planned. Klett with his long standing experience in software solutions, shares some

of the lessons learnt which is applicable to both vendors and their customers to avoid pitfalls in implementation of a software solution.

Some lessons are:-Long implementations means more room for disaster-Don’t underestimate a user’s need to understand how a

solution works.-Real systems need high quality data.

search tags: Duncan Klett, excel, software

2011 – the Year For supply chain transformation?Blogger: carol McIntoshMcIntosh writes of an expected trend looming in the market indicating a high level of interest in supply-chain transformation this year. Economies have started showing signs of improvement. This has resulted in a strong realization that renewed focus must be placed for business, technology and process improvement.

McIntosh goes a step further to show that a best-in-class supply-chain will ensure that the right products are available at the right time to deliver to the customer. In her opinion, there are three classes of companies: Leaders who effectively manage risk and embrace change. LeaderWannaBe’s who recognize the opportunity and the need for improvement but not yet a leader; and the Laggards who are stuck in status quo, highly unlikely to take risks.search tags: supply transformation, carol mcintosh

— Compiled by Frewin Francis

BLogospHeRe


< pAnoRAMA

With its FCB series of block cameras, Sony offers features such as optical zoom range and advanced

capabilities including Progressive Scan imaging. The wide-ranging scope of the new block cameras provides OEM and systems integrators an expanding number of applications including security, intelligent traffic, un-manned vehicles, low vision, inspection and videocon-

ferencing.Using features such

as increased low light sensitivity, resolution and progressive scan imaging, users can use it to enhance tradi-tional security applica-tions.

The FCB E-Series has on offer 10 cam-eras with zoom rang-es from 18x to 36x. Moreover, progressive scan images magni-

fied with 36x optical zoom (up to 432x combined opti-cal and digital zoom) produce clear pictures of far away moving objects in applications such as automatic license plate recognition applications (ALPR). The new Wide-D modes create exceptional dynamic range to improve high-contrast images under a broad range of lighting conditions.

The FCB E Series features a Sodium Vapor Lamp Mode that compensates for the sodium vapor lamp de-gree of Kelvin to restore objects to their original color. In addition, all E-Series cameras utilize a digital interface (Y/Cb/Cr 4:2:2) that deliver virtually non-deteriorated images by removing the need for an external analog/dig-ital converter.

Key Features: Optical zoom ranges of 36x and 432x when combined with digital and analog zooming. (Model specific) Low light sensitivity High dynamic rangeManufacturer: SonySelling Point: Enhances traditional security applications.

The SIMATIC RF200 is a compact RFID system from the SIMATIC RF product family. The range consists

of high frequency (HF) readers, specifically designed for intra-logistics and small assembly lines. The SIMATIC RF200 RFID readers exclusively support the RFID stand-ard ISO 15693 for operation with Siemens’ MOBY D range of transponders.

The system finds applications in handling techniques and assembly lines in the production sector. In produc-tion, it can used to control material flow control, and identification of all kinds of containers.

An advantage of the SIMATIC RF200 is that is scalable for RFID and automation solutions based on customer re-quirements. Control via PROFIBUS and PROFINET allows for easy commissioning and diagnostics at all times. It is also rugged with industrial-suited IP67 protection rating thus ensuring protection from dust and moderate immer-sion in liquids. To reduce ownership costs, the SIMATIC RF200 employs maintenance-free transponders with memory up to 2000 bytes (FRAM).

Key Features: Read-write distance of 130mmOperating frequency range of 13,56 MHzComplies to ISO 15693 standardsManufacturer: SiemensSelling Point: Reduces ownership costs

LAuncHpAD

Block cameras

Product

Product

sIMAtIc RF200


FleetMatics 8.0

SoliQ is a concept by Billerud Fresh Services AB. SoliQ has been developed to substantially reduce

losses linked to under-performing packaging during transport, to allow greater efficiency and lower envi-ronmental impact.

A SoliQ-marked box consists of paper from 100 per-cent primary fiber, resulting in a much stronger and more durable solution than recycled fibre does, par-ticularly in high humidity. When paper is exposed to

FleetMatics is a developer of GPS fleet tracking for commercial fleet vehicles. The FleetMatics 8.0 GPS

Vehicle Tracking System is their latest release of GPS software solution for tracking and performance man-agement of mobile assets.

Some of the new features of this release are FleetMatics Mobile, Trending, Ride Along and My FleetMatics. FleetMatics 8.0 also offers users never before available levels of current and historical data to help meet the real challenges of effective f leet management.

The mobile delivery platform offers a portable and full-featured version of the GPS Vehicle Track-ing System; Mobile App. provides real-time access to vehicle locations, alerts, reports and dashboards anytime and anywhere, using a native Android ap-plication. This feature allows users to run their f leet from their smart phones.

The Google Street View and Google Maps API Pre-mier put dispatchers and management in control by ena-bling both high-level and street-level area map views and capabilities. Satellite views and in-depth reporting capa-bilities can be tapped to provide current traffic informa-

tion for faster routing and avoidance of traffic jams and other delays.

FleetMatics has further advanced its Garmin integra-tion so that drivers can get audible turn-by-turn routing directions to any customer location. This streamlines efficiency and productivity by eliminating time-con-suming use of cell phones or radios that disrupt the flow of business.

Key Features: User customizability Google Street View and Google Maps API Garmin IntegrationManufacturer: FleetMaticsSelling Point: Real-time access to vehicle locations

New Products, Technologies, Solutions

soliQSolution

Solution

high levels of moisture, recycled fibers are more likely to disintegrate than primary fiber.

For growers and exporters, profitability increases sharply if the whole harvest reaches its destination in perfect shape. SoliQ is a wise choice when cutting un-foreseen costs at these stages of the value chain.

Billerud Fresh Services worked with partners spe-cialized in controlled and modif ied atmosphere to increase the produce shelf life. Sensors are also used to follow the produce all the way from an exporter to the retailer in Europe, in order to secure the quality and making sure that possible problems are detected immediately.

Key Features: Designed for toughest transportation conditions Use of sensors allows monitoring of goods while in

transitManufacturer: Billerud Fresh ServicesSelling Point: Reduces loss during transport

5656

Interface

57

Only three years in India and Pranil Vadgama, President of cHeP India, has already made a mark. three years ago, cHeP introduced the model of pooling pallets and crates in India, a little-known concept turned into full reality with 200 plus customers across India. Frewin Francis follows the trail.

INDIA| May 2011 | www.logisticsweek.com 57

How can anyone build a multi-million global company only by pooling pallets & crates? The answer lies in

the value provided to CHEP’s customers, and the model is already working successfully with 200 customers in India, says Pranil Vadgama, President of CHEP India, proudly.

After having worked for about 10 years in Hol-land, Spain, Italy and the US for General Electric, Vadgama, four years after joining CHEP, fixed his gaze on India. Managing Six Sigma at GE and then at CHEP, it was a fascinating opportunity when he was asked to evangelize equipment pool-ing in India. He made his move.

The CHEP model provided a breakthrough in terms of costs with pallet / crate pooling, especially for Indian companies that are per-ennially looking to slash them. “It wasn’t like selling a new product,” he says. There was nothing to compare. The risk was as big as the scope, mainly because there was no pallet or crate pooling in the country before CHEP set up office here. The Indian milieu too was as good as new to him because he was born and raised in London and spent more than a dec-ade in Europe and the US. But all that is of aca-demic interest now. In 2008, he started from scratch in India as the man in charge of man-aging the CHEP assets. CHEP had its presence in several countries, but India was beckoning.

new in the marketThe concept soon caught on in India. Close on the heels after CHEP India began operations, Vadgama saw some competition, but not of an organized kind like CHEP. The competi-tion was on a local scale, so obviously region-centric. The pooling that took place in south India, mainly between Chennai and Bengaluru has not kept pace with Vadgama’s schemes. “But that does not mean we are naïve to think we will not have any real competition,” says Vadgama. “Competitors exist in all markets, yet CHEP is the global leader due to the value and service it provides to its customers. This is a model followed by CHEP globally, that if and when competition enters the market, we con-tinue to use our vast resources and experience in the field to demonstrate those benefits.” Pallet pooling business is extremely capital-intensive due to the large numbers of pallets and crates needed, and there are additional challenges related to setting up such a busi-ness model in India – tax, process, infrastruc-ture & resources.

Palletization offers several benefits. It is hy-gienic as products from manufacturing are now placed on pallets for storage versus tarpaulin or other. It brings in speed of material handling, es-pecially truck turnaround times are important. In terms of storage in racking systems, organi-zations are looking to go vertical where a pal-let would be required. It helps bring down cost of manual labour. Organizations using pallets shrink-wrap the products that strengthens load,

Palletable Pooling

Pranil Vadgama President, CHEP India

Interviews, Company and Executive Profiles


eliminates damage in movement and reduces shrinkage.

fruitful collaborationsAbout the methods of collaborating and pooling pallets/crates, Vadgama says: “There are many industry players in India today, and it is gratifying to know that many people in the industry are forward thinking. Companies might be competitors when it comes to products but most agree that collaboration is the way to take things forward. The way we have done it here is the same way we have done it in other parts of the world, we go and talk to the visionaries.”

As proof, Vadgama mentions visionaries who share his belief of the huge benefits of pooling. What is heart-ening for CHEP India is the business it accrues from the

gain of one customer. He says, “You acquire one cus-tomer and you in turn gain the opportunity for entire supply-chain business of the company’s other func-tions, such as raw materials, post-production, etc.”

The man has constantly been working with associations and industry bodies in various sectors, from SIAM to GS1/ECR (Global Standards 1, an independent body) to familiar-ize them with palletization and supply chain automation. CHEP India has also executed several pilot projects on pal-letized movements of goods with companies such as Unilev-er and Metro. “We look forward to the day when a product be-ing rolled out of the factory actually moves on the pallet,” he says. “In India, everything is stuffed into a truck and taken out hand by hand. People often say that they aren’t ready and cite poor truck standards, lack of material handling equip-ment etc. so we decided to try it with Metro and Unilever and it worked. Of course it is not ready yet to go to full scale, but this is where the forward thinkers are important. It is impor-tant to work with different industry bodies, but the key peo-ple are the visionaries. “I’ve never had anyone say to me out of hundreds of customer meetings I’ve had that what we are introducing in India is a bad idea and wont work.”

However, while CHEP offers RFID services for their pallets/crates globally, it is not yet the case in India. In the West it is used extensively and tagging prices have come down. But, as Vadgama says, “The key thing is

“We look forward to the day when a product on being rolled out of the factory actually moves on the pallet. In India, everything is stuffed into a truck and taken out hand by hand.”

Technology plays a critical role in helping the company move the pallets from one company to another quickly.

Interface


that there is a lot of value in it. And once you understand the value part then the cost part is justified.”

Dynamics of costAbout the decision to use wood in India, Vadgama says: “Plastic pallets are more expensive and would not be as popular as wood. We import soft wood from Europe because felling of such trees is illegal in India without a permit and the permits are govern-ment-controlled. Hard wood is easily available in India but weighs roughly 2 or 3 times more than the soft wood pallet. A lot of the customers we talked to in the beginning like Unilever, Pep-si, Coke, and P&G all used wooden pallets. Nestle uses wooden pallets globally. So why would they use plas-tic? But since we service the wooden pallet, we can extend the life…moreo-ver a plastic pallet, once damaged, is difficult to repair.”

The pallets are designed for racking, not for floor stor-age. When racking, pallets need to be strong. When you have G+4 or even higher, the pallets need to be designed to take the weight to ensure safety.

On retrieving the pallets, Vadgama says: “We have 30 plus warehouses all over India, so when a customer wishes to de-hire a pallet, he can either drop them back or we pick them up. But it does not end here, we have pallet collec-tion at a global level and this is what keeps us ahead of the competition.. Let’s say a manufacturer sends products to Germany on a non-pooled pallet costing around a Rs 1,000. Once it reaches Germany, the pallets go to waste, which we refer to as one-way packaging. In our case, that does not happen. We help companies be asset light and environmen-tally friendly.” If a customer is not using a CHEP pallet, he

incurs the full cost of the pallet and its disposal.Vadgama says impressively that CHEP’s returnable sys-

tem has been found to deliver environmental performance and financial value for the supply-chain by an independ-ent study from RMIT University Melbourne, Australia. The study found the CHEP system generated significant benefits for customers compared with a single-use corru-gated cardboard packaging system in Australia.

CHEP India works with logistics service providers (LSP) too. CHEP provides them pallets for their warehous-ing. What lacks is that most trucks are not customized for pallets and hence pallets are used only for static storage. But CHEP is working towards taking things to the next level, which is moving goods on pallets. A big reason why trucks are not customized for palletization is because even if they are…when it reaches the warehouse, if you do not forklifts, then what do you do?

Vadgama has also thought about end- to-end palleti-zation/racking solutions. “But not at a deeper level,” he says. “There is opportunity for a systems integrator in In-dia. We don’t specifically, but we always offer our exper-tise. Our focus on pooling is why we have had this amount of success. India is like a big candy store, but focus is very important. For the automotive market we have 8 stand-ard crate sizes and a large container (FLC) and for FMCG wooden pallets, 1200x1000 mm size. We are investigat-ing other opportunities as well, like liquid and dry-goods movement but we are at very early stages of pilots and evaluations. The Intermediate Bulk Container (IBC) helps avoid unnecessary costs of one-way drum movements.

“The key is to get customers to use pooled assets now and continue to use them as the supply chain matures.”

Since the pallets

are made for

vertical use, they

are designed to

take the weight

of up to one ton

of goods.

CHEP’s plants use composite blocks from recy-cled wood for all pallet block repairs. This proc-

ess will have saved the environment over a period of 10 years the deforestation of some 1.5 million trees or the equivalent of 3,750 hectares of forest. The savings would have produced some 891K tonnes of oxygen and allowed a carbon sink of 1,350K tonnes. CHEP pallets are produced from the renewable resource of high quality pine and spruce timber stemming from sustainable well managed European forests. The CO² production through the manufactur-ing of a wooden CHEP pallet is negative (40 kg of CO² emission saving per pallet).

Helping The Environment

Interface


< EVENTS

May 2011

May 5 and 6, 2011Southern aSia PortS LogiSticS & ShiPPing - chennai itc hotel Park Sheraton & towersSouthern Asia Ports Logistics and Shipping is one of the largest yearly container ports, shipping and logistics exhibition and conference of throughout Southern Asia. An optimum B2B platform, held over two days, the event is held along with a conference which depicts transport and logistics developments in Southern Asia.

Exhibitors include international air freight serv-ices companies, international freight forwarders, ship owner & ship management, ship services and supply, ship consultants, shipyards, maritime communications and software, offshore supply, shipbrokers, ship finance, ship insurance, maritime law, trading house & ship agents, logistics & ware-housing companies, maritime organizations, gov-ernment, classifications & inspection, port authority & port service, insurance companies.organized by: Transport Events Management Ltd.Tel: +60 3 80235352

May 13 - 16, 2011indiaMart iMeX 2011auto cluster exhibition centre, PuneIndiaMart IMEX 2011 is dedicated to the machine tools and allied products industry in India. Huge trade opportunities await participants at IndiaMart IMEX 2011.

Exhibitors include process control systems, CAD/CAM production equipment for automated assembly & handling hydraulic & pneumatics, material han-dling equipment, turning centers, machining cent-ers, grinding centers, electro-discharge machines, special purpose machines, lathes, drilling machines, boring machines, milling machines, sheet working machines, gear cutting and finishing machines, plastic processing machines, measuring and testing systems, and production control and networks. organized by: Conventions & Fairs (India) Pvt. Ltd.Tel: +91 22 28398000

May 21 and 22, 2011FranchiSe & retaiL oPPortunitieS Show-MuMbainehru centre, MumbaiOrganized by Franchise India Holdings Ltd., the show is a trade fair for retail and franchise sector in India.

Profile for exhibitors includes franchisor, retail-er service provider, real estate, marketing & sell-ing persons, franchisee & business opportunity companies will be participating in this trade show.organized by: Franchise India Holdings Ltd.Tel: +91 11 32563453

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May 25- 27, 2011PLaSteX caSPianiinternational exhibition centre, PunePlastex Caspian is an International trade exhibi-tion for raw materials, equipment, plastics & rubber production & processing technologies. Profile for exhibitors include machinery and plant for processing, post-processing machines, machinery and plant for finishing, decorating, printing and marking, welding machines, moulds and dies, measuring, control and test equipment, parts and components, plastics and rubber products, ancillary equipment, logistics stor-age systems for the plastics and rubber industries, services for the plastics and rubber industries.organized by: ITE UzbekistanTel: +998 71 1130180

May 26 - 29, 2011india Machine tooLS Show 2011Pragati Maidan, new delhiIMTOS has been organized with the focus on the development and promotion of newer breakthroughs in plant and machinery industry. The fair will empha-size on the importance of newer technologies and products. The liaisons with government bodies and good publicity has made this event highly anticipated in the trading circles.

Exhibitor profiles include hand tools, cutting tools and power tools, machine tools, robotics & auto-mation, pneumatics, air compressors, pumps and valves, CNC and SPM, hydraulics, chemical & pharma machinery, metal forming machinery, energy conser-vation, material handling equipment, electrical and electronics, welding & welding consumables, wires & cables, and CAD/CAM.organized by: K & D Communications LimitedTel: +91 79 26460453/26460624

May 26 - 29, 2011autoMation worLd ShowPragati Maidan, new delhiAutomation World Show is the ideal place to display your spectrum of intelligent products, services and solutions for the entire industrial automation sector. Profile for exhibit includes industrial & manufac-turing sector, defense sector, space & archeology, medical sector, marine sciences, automotive sector, entertainment sector, humanoid robots, educational robots, automation machine tools, CNC, SPM, electri-cal, electronics, instrumentation & controls, software technology, metal farming machine, casting & forging, machine tools, cutting tools, energy conservation, power tools, air compressor, hydraulic & pneumat-ics, die & mould, building automation, power plant automation.organized by: KMg Business TechnologyTel: +91 79 32410602

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LOG.India May 2011 Issue