India manufacturing Summit

A talk on

“Connecting Dots at Competitive Cost”

By :

Vaseem AhamadPidilite Industries Ltd

Contents –

Three dimensional approach of supply chain.Supply Chain structureAnalysis of logistics costPrimary freight management Secondary freight management - FRD

Service

Stock Cost

3 Dimensional Approach of Supply Chain

Improvement in Customer Service

Reduction in Warehouse Costs

Improvement in Primary & Secondary Freight

Reduction in Working Capital by controlling stock through forecast accuracy

Level 1

Level 2

Level 3

Level 4

Level 5

Supply Chain StructureSupply Chain Structure

Primary distribution

Secondary distribution

Supplier

Mfg Plant

Distribution Hub

Depots

WSS

Analysis of logistics cost

Logistics cost comprises of following elements 6.00%

Warehousing cost 26% 1.56%

Inventory Cost 24% 1.14%

order processing & administrative cost 10% 0.60%

Freight cost 50% 3.00%

Primary freight cost

Secondary freight cost

As % of sales

Primary freight cost management

Freight cost is the function of “freight rate” and the “loading

efficiency”Both parameters to be addressed to manage the freight cost

Low freight may deteriorate the service level and high freight may not

result in high service level hence appropriate rate to be explored

Low loading efficiency is a seepage of freight cost.

Freight rate management Reverse auctionBench marking with similar industry – Freight as % as salesBasic thumb rule check (Distance based costing)To explore the possibility of outsourcing ( If business allows)Timely & genuine correction of freight rate

Primary freight cost management --contd

Reverse auction- Basic rules to be focused

Selection of reliable carriers Carriers who are well versed with reveres auction processTo share full information and all terms and conditions with transporter.Internal review on reverse auction findings before implementation.Phased manner change over.

Illustration on Reverse auction outcome :

Ex Location To Locations Before RO After RO % saving Comments

Zirakpur

Bangalore 57938 53303 8% Scope for reductionChennai 61800 61182 1% Entry reduction

Ernakulam 73030 65727.00 10% Scope for reductionHubli 51500 50470 2% Entry reduction

Hyderabad 47700 48800.00 -2% May be considered for increase

Primary freight cost management ---- Contd

Loading efficiency

Loading efficiency is the ratio of actual weight and standard capacity of vehicleLow loading efficiency is due to the nature of merchandise

Volumetrically low loading efficiency. Example – In case of high density merchandise like Iron, Cement etc. Weight wise low loading efficiencyExample – In case of light density merchandise like Pharma, cosmetics and Foods.

Low loading efficiency issue can be addressed by using the correct vehicle type

Primary freight cost management ---- Contd

Variety of vehicles are available in market.

Depending on the nature of merchandise, correct use of vehicles helps in

improving the loading efficiency and which results in economic freight cost.

Improving the loadability by using support

Model Type

Net carrying capacity Dimension Available

CFTCFT per

MT Suitable for Factor

9 MT 18 X7X7 882 98 light density merchandise Normal freight 7 MT 20 X 8 X 8.5 1360 194 Very light density merchandise premium over normal 16 MT 22 X7 X 7 1078 67 Heavy density merchandise Normal freight

16 MT 32 X 8 X7 1792 112 Very light density merchandise Premium over normal freight

21 MT 24 X 7 X7 1176 56 Very heavy density merchandise discount over normal freight

21 MT 32 X 8 X7 1792 85 Moderate density merchandise Normal freight

Secondary freight cost management

Secondary transportation is quite complex in nature as compare to primary

transportation Have direct impact on serviceManaged by regional playersOperate on parcel modeFreight rate format as Rs per kg or Rs per carton.

Door collectionConsolidation at

transporter’s godown at despatch end

Deconsolidation at transporter’s godown a

t delivery end.Door delivery

Traditional secondary distribution: For a customer at 500 KM distance

1 Day 1- day waiting

2- days transit time

1- days

Reach customer end by 5th day

Secondary freight cost management FRD ( Fixed route despatch mode)

To cater all the customer falling on same route through a dedicated vehicle

Possible by bringing discipline in despatch through close co-ordination with stockiest.

Load formation through assigning the frequency of supply to customer based on customer off take.

Fixing the trip rate trip rate or discounted per kg rate.

FRD Route Towns

1AurangabadAhmadnagar

Jalna

2

BeedParbhaniNandedHingoli

3

SolapurOsmanabad

LaturBarshi

Thanks