Celerity in Business through Supply Chain, March - April 2019

SUPPLYCHAINTRIBE.COM March - April 2019 Volume 3 Issue 2 For private circulation only

PERSPECTIVE Industry stalwarts reflect upon the Interim Budget 2019—20

Reverse Factoring for

FORWARD GROWTH Supply Chain Finance (SCF) is being increasingly embraced over the last decade, with technology making the process faster and cheaper.

This cover story unlocks its true value.

PUBLISHER’S NOTE

Surgical Strike in Supply Chain Dear Readers, The early morning of 26th February was euphoric with news about India’s successful strike on Jaish-e-Mohammed terror camps destroying them completely. And then it got me thinking about a surgical strike required in our supply chain domain. We need to dive deep inside our supply chains and do a very hard-hitting surgical strike on the existing inefficiencies which lead to huge costs and wastage.

Rooting out inefficiencies should be a strategic initiative taking into consideration each and every loophole or what we call operational bottlenecks. Yes, technology would play a crucial role, but we can’t undermine the major catalyst in the whole operation – Human Capital.

TALENT development and recognition of our young workforce is the need of the hour. With a view to recognize this very significant aspect, we at CELERITY are launching the ‘30 Under 30 Supply Chain Leaders of Tomorrow’ awards, where the super talented young workforce is honored for their extraordinary work. This will be a true lamp-post for the next-gen and serve as a repository for companies to hire and sustain the very best of talent.

Efficiencies and growth in the value chain are also being enhanced by using the Supply Chain Finance (SCF) offerings being given by banks. There are also companies who are successfully going through supply chain transformation to reduce inefficiencies, however for it to have a major impact, rooting out inefficiencies should become a focus for all companies and not a byproduct of certain projects.

Here’s to a No-More-Inefficient financial year 2019-20.

Charulata Bansal Publisher Charulata.bansal@celerityin.com www.supplychaintribe.com

Published by Charulata Bansal on behalf of Celerity India Marketing Services Edited by: Prerna Lodaya • e-mail: prerna.lodaya@celerityin.com Designed by: Lakshminarayanan G • e-mail: lakshdesign@gmail.com Printed by: Xposures, A 210, Byculla Service Industrial Estate, D K Cross Road, Byculla, Mumbai- 400027.

Logistics Partner: Blue Dart Express Limited

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CONTENTS

March - April 2019 Volume 3 Issue 2

18

COVER STORY Financing SMALL for BIG growth Supply Chain Finance (SCF), though not in the limelight is being increasingly embraced over the last decade, with technology making SCF faster and cheaper.

15 PERSPECTIVE Interim Budget 2019-20 decoded INTERVIEWS

6 An Absolut advantage Supply Chain is a competitive advantage that works hand in hand with other stakeholders in delivering business objectives, shares Rituraj Saha, Head – SCM, Pernod Ricard India

30 Debugging the conventional Fundamental redesign of supply chains based on core competencies and shared destinies will be the future change, asserts Anish Tripathi, Vice President – Strategic Initiatives, NRB Bearings Ltd

FOCUS

10 Automation – Key to future-ready

warehouses

For Rupesh Narkar, Director of Sales for Swisslog Logistics, Inc., automation has been seeping into the Indian warehouses slowly but surely with a greater thrust to make them GST ready.

Editor: Prerna Lodaya

Industry stalwarts share their perspectives & analysis of the Interim Budget 2019—20.

OPINION

25 AEO – Taking India global Authorised Economic Operator (AEO) is poised to be the game changer for every importer and exporter, highlights Krishna Barad, Associate Director- Customs & Trade Compliance, PwC.

28 Packaging for a better world Manmath K Mishra, Packaging Consultant, Innopack Packaging Consultants, shares insights on optimizing logistics and inventory carrying cost through innovations in packaging.

RECAP

33 Delivering value in next chapter of Manufacturing 4.0

The 8th Annual Manufacturing Supply Chain Summit & Awards event recap

34 Globally trending News & views trending globally

DISCLAIMER: This magazine is being published on the condition and understanding that the information, comments and views it contains are merely for guidance and reference and must not be taken as having the authority of, or being binding in any way on, the author, editors, publishers who do not take any responsibility whatsoever for any loss, damage or distress to any person on account of any action taken or not taken on the basis of this publication. Despite all the care taken, errors or omissions may have crept inadvertently into this publication. The publisher shall be obliged if any such error or omission is brought to her notice for possible correction in the next edition.

The views expressed here are solely those of the author in his private/professional capacity and do not in any way represent the views of the publisher. All trademarks, products, pictures, copyrights, registered marks, patents, logos, holograms and names belong to the respective owners. The publication will entertain no claims on the above.

No part of this publication can be reproduced or transmitted in any form or by any means, without prior permission of the publisher. All disputes are subject to the exclusive jurisdiction of competent courts and forums in Mumbai only.

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INTERVIEW

INTERVIEW

An ABSOLUT Advantage “Supply Chain is a competitive advantage that works hand in hand with other stakeholders in delivering business objectives. It is important to have a strategy that is integrated with the overall business strategy or vision or mission of the company. Lack of direction hinders our ability to focus on key areas, impacting deliverables,” shares Rituraj Saha, Head – SCM, Pernod Ricard India, during an exclusive interview…

How transformative has your supply chain journey been over the years?

In this continued journey of two decades in supply chain management, my career curve has spanned across varied verticals such as FMCG, paints, automobile, apparel and now alcoholic beverages industry. During this immense learning experience, I have driven supply chain transformations including organization development, process reengineering and system implementation across multiple countries. My six-sigma black belt training has helped me drive process efficiencies in supply chain. It has been a very fulfilling journey filled with its own share of opportunities and challenges.

In the last decade or so, most companies have realized that it’s the core supply chain function that enables a company to achieve the desired topline & bottom line performance.

Supply chain function is the key lever in delivering desired service levels and

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enhance operational efficiency. The maturity levels of supply chain as well as operational processes of the company define the underlying difference between a great company and an average company. Leading companies have already started taking concrete steps and have been reaping benefits of the closed-knit supply chain network.

Supply chain has successfully broken the siloes that the companies were having in the past and has emerged as a very integrated strong value chain.

Today the market requirements can be fulfilled on time and in-full conditions, all thanks to an integrated full-proof supply chain. In doing so, we have also ensured that we meet the customers’ requirements in the least possible cost to serve at an optimal investment level & inventory.

What are the challenges faced by industries at large?

The challenges persist in varying degrees depending on the level of

maturity in the supply chain continuum.

I would like to slot these challenges into three broad categories – Strategic, Operational and People/Capability.

These are interlinked with each other, impacting an organization’s ability to drive business objectives seamlessly:

Strategic Supply Chain is a competitive advantage that works hand in hand with other stakeholders in delivering business objectives. It is important to have a strategy that is integrated with the

overall business strategy or vision or mission of the company. Lack of direction hinders our ability to focus on key areas, impacting deliverables.

A good strategy always articulates key focus areas supported by process, structure and tools. Companies I have worked with have embarked on supply chain transformations and improvement initiatives like Network Optimization, Six Sigma/Operational Excellence, Process Reengineering, Tool Implementation, Integrated Planning Foundation, Digitization of Supply Chain, Logistics Excellence etc., to strengthen the supply chain function.

These projects are transformational and aim to improve operational efficiency, service level and process maturity across all tiers of supply chain. The journey of formulating, aligning and executing supply chain strategy is a challenge every company confronts at some point in time.

Operational Increase in volatility of customer demand, forecast inaccuracy or aligning operations to real time fluctuation in demand are challenges that all companies face. This not only impacts the top line but also operational cost and efficiency. Collaborative demand planning, agile supply chain, innovative inventory modelling are ways by which a company can improve forecasting ability or de-risk itself from continuous fluctuation in demand.

Effective Inventory management is another key challenge common to all industries. Higher or lower than

desired inventory level can have a deep impact on company’s service level and operating cost. Having an optimal level of inventory across the enterprise (including extended enterprise and trade) is key to achieving a superior service level while minimizing obsolescence and working capital requirement. There is no one-size-fitsall approach for arriving at the optimal inventory level. Companies having inventory management guidelines have managed to achieve it through a process-based approach.

Visibility of planning information such as current inventory levels, actual sales/offtake, expected demand and expected shipment enhance our ability to respond fast to change in customer demand. Visibility of information or availability of data from supply chain entities, including partners, enables the organization to make better decisions leading to superior customer service.

Lack of information could be because of inadequate IT system or because of lack of standard data management or lack of system integration across the extended supply chain.

People/Capability issues A strategy is as good as its execution.

People or capability plays an important role in executing a strategy. Lack of right capability across all levels of supply chain is one of the key challenges faced by companies. Good knowledge about the business as well as function, ability to balance conflicting priorities, good influencing skills and a good execution mindset are key traits for a successful

supply chain professional. Recruiting and retaining talents having the right blend of skills are must for creating a worldclass supply chain team. It is equally important to augment SC capabilities across all functions to ensure higher compliance to plan. Cross-functional collaboration and alignment becomes easy if stakeholders are aware of implications of their role in the supply chain and their actions on the overall results.

There are challenges that are specific to an industry (regulatory and environmental challenges in Alco beverage industry) or to a company with in industry. Companies overcome these challenges through a combination of People, Process and Technology solutions and through relentless execution of supply chain strategy that is aligned with the overall business strategy.

What are the ways in which one can develop an agile supply chain?

There are various ways by which you can make your supply chain agile and demand driven: Delayed differentiation/postponement strategy: Having worked in supply chain across many industries, I have seen this principle being applied everywhere.

It is about carrying inventory in a generic form – that is, in a standard semi-finished product and do final assembly/production/localization post confirmation of real demand.

This is why we call postponement

Introducing flexibility across the supply chain requires closer relationship with customers and suppliers enabled with better information and product flow. Agility in the upstream can be achieved by collaborating with your vendors, involving them in new product commercialization process, through Vendor Managed Inventory and by sharing information on a continuous basis.

Our experience says that new product introduction time can be dramatically reduced through the involvement of suppliers in the innovation process. Agility in manufacturing is also about determining capacity flex, relevant capacities based on market and product characteristics. supplychaintribe.com

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INTERVIEW

INTERVIEW

Successful supply chain managers need to follow a service-oriented approach to live up to their customers’ requirements and driving profits for the company they work with. Another key attribute is to have a holistic view of the business and not just focus on your core KRA. I strongly believe that teamwork and collaboration among the stakeholders will take you a long way in becoming a successful leader. Only way you can win the trust of your colleagues is by being fact based and transparent and ensuring that you do whatever is right for the business. a vital element in an agile strategy.

Postponement should happen as close to the customer as possible. Key advantages of postponement: - Inventory can be held at generic level - Higher flexibility - Forecasting is easier at the generic level - Higher variety on offer at lower cost.

Segmented approach to Forecasting and Inventory management: There is no one size fits all approach. In order to stay nimble, we will have to follow the segmented approach to forecasting and inventory management depending on nature of SKUs and markets. e.g., we can classify SKUs into ABC and XYZ on the basis of value contribution and variability of demand and can follow different forecasting, production planning & replenishment and inventory approach for different types of SKUs. You may have to create an agile supply chain for SKUs that are less predictable and are at an early stage of a product life cycle.

End-to-end supply chain flexibility: Introducing flexibility across the supply chain requires closer relationship with customers and suppliers enabled with better information and product flow. Agility in the upstream can be achieved by collaborating with your vendors, involving them in new product commercialization process, through Vendor Managed Inventory and by sharing information on a continuous basis. Our experience says that new product introduction time can be dramatically reduced through the involvement of suppliers

8 CELERITY March - April 2019

in the innovation process. Agility in manufacturing is also about determining capacity flex, relevant capacities based on market and product characteristics.

Leveraging technology: Demand driven supply chain is all about capturing demand on a real-time basis and responding to that accordingly. You will have to leverage technology to respond to real-time data through the use of smart systems, Internet of Things and analytics. Technology tools help companies in augmenting collaborative forecasting capability, understanding exceptions with what-if scenario capability and getting visibility & taking proactive actions to service market needs. An effective Transportation Management System helps companies drive agility, visibility as well as operational efficiency.

Integrated business planning approach: As complexity of organization grows, it can become a stumbling block in a company’s ability to stay nimble.

IBP is an approach through which a big company can stay agile through close collaboration with all stakeholders. Its objective is to align all internal as well as external stakeholders on operational plan linked to financial objectives. It is all about collaboration among functions to drive faster decision making through informed data. It is also about continuous flow of information from downstream to upstream and acting on it proactively to address challenges confronting your business, formulating strategy and executing against that.

Having said that there will be occasions when either pure AGILE or

LEAN strategy might be appropriate for a supply chain. However, there will often be situations where a combination of the two may be appropriate depending on the nature of the market or SKU/ product characteristics. You could be lean for part of the time and agile for the rest. I truly believe that supply chain is a competitive advantage that works hand in hand with stakeholders in driving business objectives. An agile supply chain can go a long way in supporting business, stay ahead of the curve leading to growth and superior customer service.

How do you achieve end-to-end supply chain collaboration across the business?

It has be a combination of process tool and matrix approach. For the process, we need to ensure that there is crossfunction of API in place. All stakeholders within the supply chain function are driving one common objective of delivering service levels. End-to-end supply chain collaboration can be enhanced or can be facilitated through an automated integrated supply chain solution and that’s what we intend to roll out because in the absence of that, it becomes very difficult to manage the frequent changes in demand. There also needs to be an integration with our upstream partners such as vendors. It is certain that without involving external stakeholders, the desired benefits can’t be realized. We do so by vendor management inventory. We also ensure that the vendors are involved in the design stage when it comes to new product commercialization. These are the ways by way of which we can make

our supply chain responsive. In the crux, it has be to the perfect concoction of upstream & downstream as well as internal as well as external stakeholders.

What leadership qualities do you think can drive employees’ performance?

The ability to earn respect and trust with our stakeholders is one of the key elements. If you want to be a successful professional, you have to ensure that you earn their confidence.

I always believe in having an open and transparent environment at the workplace. I like to delegate tasks to people and lead them from the front so that they develop those leadership qualities and get motivated. I also encourage them to embrace changes and be innovative. People need to find ways to execute the same task in different ways so that there is always an alternative at hand in times of adversity.

It's the relentless desire to win, coupled with strong execution mindset and an ability to build a high performing team are what make you an outstanding leader. A passionate SCM professional needs to treat the business as if it was his own, to invest and grow my people, and never compromise on integrity.

What are the key strategic pillars of a successful supply chain?

A successful company leverages its supply chain to stay ahead of competition. It relies heavily on key supply chain strategic pillars to drive execution of business strategy and thereby ensure achievement of goals in the short to medium/long term.

That’s the reason you will always find a successful company underpinned by a strong supply chain function as a competitive advantage. Key strategic pillars that a successful company focuses on to make SCM a competitive advantage are: Demand Driven Supply Chain Management: Demand driven supply chain is all about better understanding of customer needs and aligning your supply chain processes to actual consumption and consumer demand.

It is about designing supply chain that best meets the need of the consumer on an ongoing basis. Real time and transparent visibility of data across all tiers in the supply chain is key to

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making a demand driven supply chain.

Integrated Business Planning: IBP is an integrated business management process supported by integrated tools and capabilities through which Volume, Demand & Supply Planning of the enterprise are continuously aligned & synchronized across all relevant functions of each organization.

Integrated business plan helps a company tie operational plan to overall business objective and align all stakeholders on one operational plan that allocates resources most effectively. Process discipline, simplicity, commitment from all stakeholders and persistence are key enablers for a successful IBP. Operational Excellence (OE): A company embracing Operational Excellence strives to attain a disciplined approach to whatever it undertakes. It is about continuous improvement with an objective to improve key performance metrics. OE in supply chain should be focused on optimizing performance across all processes. Redesigning supply chain processes through an Operational Excellence approach goes a long way in unlocking value and meeting stakeholder’s requirement.

Inventory Management: The objective of inventory management is to improve stock availability & freshness at optimal level of inventory. Inventory management includes Product life cycle management, Raw Material & Packaging material planning and Finished Goods inventory management (Inventory Planning, Inventory Policy and Inventory Control) across all tiers of the supply chain. A good inventory management helps a company improve service level, full price sell out performance as well as working capital efficiency thereby achieving higher topline, free cash flow and EBIT. Capability Development: Personnel capability development across all levels of organizations is a non-negotiable requirement for successful execution of any initiative. This is one of the biggest levers a company focuses on to improve the execution capability. Capability development happens through a combination of on-the-job training, roadshows, training workshop and

mentoring. Many companies embark on supply chain excellence program to augment capability and build talent pipeline to ensure sustainable results.

These strategic pillars should be integrated with the overall business strategy and should have commitment from all stakeholders across all levels.

SCM transformation happens by executing these strategic pillars through a combination of process redesign, tool implementation, structure set up, capability building and metric tracking approach. These pillars serve as the foundations for making SCM a competitive advantage enabling companies to win in the marketplace through superior customer service and best-in-class operating model.

Where do you see Indian supply chain shaping up from here on?

Thanks to the government’s concerted thrust, infrastructural development activities have seen a market improvement. There is still a long way to go. There are lot of infrastructural bottlenecks that constrict our ability to drive efficiency. While the GST has been rolled out since more than 18 months, there are issues related to toll tax and vehicles being stopped at check posts for longer times. We would ideally want a seamless movement of goods without any stoppage. Secondly, availability of GPS-enabled trucks is also a greater worry we need to deal with. If these get streamlined, we will significantly be able to enhance efficiency in supply chain and improve lead times and the impending infrastructural developments once get realized, would ultimately result in improved operational costs.

Rituraj Saha comes with 20 years’ extensive experience in supply chain across verticals and across geographies. He has received Management in Operations degree from SPJIMR, Mumbai and has done Engineering from Indian Institute of Technology (IIT), Kharagpur. He is an avid lover of sport and was the captain of Hockey team in IIT, Kharagpur.

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FOCUS

FOCUS

Automation-

Key to Futureready Warehouses Dramatic changes to the warehouse are just beginning.

Data-driven, flexible and robotic automation solutions are helping improve performance today while retaining the agility to adapt to tomorrow’s changes. With a greater thrust to make the warehouses and DCs GST ready, logistics automation has been seeping into the Indian warehouses slowly but surely. Warehouse operators mostly running manual operations today are rethinking their ability to extract full capacity and efficiency out of the current setup and the obvious answer lies in warehousing automation, writes Rupesh Narkar, Director of Sales, Swisslog Logistics, Inc.

I

NDIAN economy is poised to overtake developed economies soon.

Constantly growing middle class, growth in consumption, record transactions in e-commerce and successful GST implementation are few key reasons fueling the growth of the economy. For any emerging economy, its blood veins are the logistics and transportation sector. As India demonstrated a sustained GDP growth of above 6.5% and projected further continuation of this trend, the transport, logistics and warehousing industry has gained focus. Government has allotted infrastructure status to the logistics industry. As per the economic survey 2017-18, the Indian logistics market is expected to reach $215 billion by 2020.

In view to this, GST has greatly simplified the complex tax structure levied on movement of goods across borders. Post GST, the logistics sector is booming thanks to faster movement of goods from point of manufacturing to destination. Warehouse (WH) and Distribution Centers (DC) are the

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backbone of logistics. GST has totally changed the warehousing scenario in the country. Earlier, warehouse operators would invest in multiple smaller warehouse locations strategically to avoid paying border taxes. According to a recent research by Knight & Frank, the future will see reduced needs to carry inventories, thus substantially reducing the need for small warehouses.

This will free up the working capital to a great extent. Additionally, there would be an overall reduction of warehousing space and consolidation of small warehouses into larger; to benefit from economies of scale. With the progressing of this trend, some of the earlier smaller warehouses are now becoming redundant. Going forward, these companies would take up larger warehousing spaces and look at improving efficiency and capacity using automation. The biggest beneficiaries of this shift would be the warehouse and logistics automation businesses. In cognizance to this, Analytics India estimates that the Indian

market for warehouse automation is projected to grow at a CAGR of 10-12% during 2018-2020, and the current warehousing operators will have to step up their game to compete with the larger warehouses.

What is making automation such an attractive bet for warehouse operators?

One obvious reason is getting the warehouses and DCs “GST ready”. The other is to gain a competitive edge.

Warehouse operators mostly running manual operations today are rethinking their ability to extract full capacity and efficiency out of the current setup. The existing Indian warehousing landscape shows a grim picture, unable to attain higher capacity and productivity due to several factors: • Lack/absence of the appropriate scale and quality of warehousing infrastructure • Technology required to enable efficient use of resources • Low capacity utilization and operating efficiencies (i.e., poor utilization and throughput/unit space)

• Limited capability for handling multimodal interfaces • Low level of productivity due to manual and non-value adding processes • Inappropriate level of Automation • Warehousing labor shortage, skill deficiencies and poor use of available resources Typically, there is little to no technology deployed in warehousing that can complement the stateof-the-art infrastructure. 3PLs (3rd Party Logistics) and OEMs (Original Equipment Manufacturers) that operate their warehouses are now intently focused on increasing productivity by automating their material flow within warehouses. The developed world has been on the forefront implementing advance automation technologies in warehousing operations. Nevertheless, today, automation is not only limited to the developed world. It is possible to implement different scales and levels of state-of-the-art automated material flow solutions that can accurately store, retrieve and transport goods faster without sacrificing reliability. In addition, these automation solutions offer both flexibility & scalability, and are easily rationalized in emerging warehousing environments.

Dynamic systems that can store and retrieve goods, intelligent algorithms that can optimize storage space and provide real-time tracking, and stateof-the-art conveyance systems that can transport goods from storage to shipping lines are all being implemented in sophisticated warehousing environments globally.

Why automate?

With the onset of warehouse space consolidation, Indian warehousing industry is witnessing rapid emergence of large warehousing spaces. Larger spaces are driving the need for efficient warehousing operations. Today, warehouse operators are aiming to achieve higher capacities in terms of better space utilization, higher productivity in terms of maximum goods inbound/outbound and improved efficiency in terms of better resource utilization. However, with the current manual processes, achieving a reliable, efficient and quick material flow within the warehouse remains a challenge. This is where automation can help. Let’s look

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at the reasons to automate…

Optimize / Maximize space utilization In the warehousing world, available space is never enough. Operators strive hard to utilize every foot and inch out of warehouse space. In India, where land commands a high premium, optimal space utilization becomes even more relevant. Even though various manual, semi-automated, high reaching storage options are implemented, they can never compete with the high density that an AS/RS (Automated Storage/ Retrieval System) can offer. AS/RSs also offer the ability to move the inventory storage up, i.e., utilize the vertical storage space thus greatly improving the storage efficiency factor. As a general observation, an AS/RS can store 50~60% more goods in the same space as a manual or semi-automated storage system.

Total inventory control, visibility and traceability Large warehouses store large volume of goods. Though warehouse operators have excelled in organizing their inventory; quickly locating, tracking and controlling inventory remains a challenge. Imagine this multiplied several times due to SKU (Stock Keeping Unit) proliferation. Recording and updating where thousands of items are on excel sheets, running around the warehouse with clip pads to locate goods and then retrieving, tracking further consistently day in day out is close to impossible. Warehouses would need to deploy plenty of resources to achieve productivity levels even close to what machines can do and still worry about accuracy and efficiency.

Machines can do this much better and consistently with accuracy. In addition, automation enables integration of Warehouse Management System (WMS) or Warehouse Execution System (WES) that provides total control of inventory on a finger’s click. Store, track, retrieve and manage inventory without even the need to walk the floor.

Higher levels of fulfilment and throughput capacity Imagine the resources required to fulfill throughput demands in a large warehouse. Hordes of people, fleet of fork trucks just shuttling goods

to and fro, struggling to keep up with demand. Now, consider meeting growth in demand as the business scales up or experiences peak activities.

Achieving higher levels of throughput to meet the demand is just out of question. With automated warehousing; storage, retrieval, conveyance and intralogistics becomes rapid and efficient. Automating the material flow can drive the throughput up four-fold as compared to manual warehousing.

Additionally, automation can easily manage fluctuations in throughput demands. A flexible automation solution can enable capacity switch between inbound and outbound when needed.

Also, automation can establish efficient picking processes, routes and sequences thus enabling better overall performance of the warehouse.

Higher productivity, efficiency and maximized capacity Many of the challenges associated with warehouse productivity involve storage and material movement.

Automation clubbed with warehouse management software addresses many issues by providing intelligent control of material flow. Software eliminates unnecessary or inefficient movements by orchestrating the flow of materials.

It optimizes storage and retrieval, eliminates congestion, finds the best route, while prioritizing flows based on demand thus increasing the productivity of personnel and material movement.

With the use of automation, errors are vastly reduced. Automated systems are faster, accurate and consistent in results. In addition to this, automation system can well perform tasks that are repetitive, monotonous and beyond human limits thus freeing up resources from non-value adding tasks. Most warehouses in developed countries have achieved 24 hours operations without shift layovers or breaks thus maximizing the shift utilization. All this collectively is driving higher levels of productivity and efficiency. It is observed that errors are dramatically reduced improving efficiency four-fold by use of automation. Automation can unlock 60~70% productivity from the get-go.

Reduced logistics and operational costs India being an economy where plenty of labor is available at cheap rates,

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FOCUS

FOCUS Infographic depicts simple warehousing processes. Depending on the appetite of automation, the table clarifies what level of automation (automation of processes) can be adopted.

many may debate the investment in automation. While the upfront costs of the automation might seem high, the rewards are seen in the long run when compared to manual labor. As the operations scale, the single largest operating expense becomes human labor. Adding to it are inaccuracies, limitation on operating time, process waste, human errors, overtimes, labor dependencies, unreliable operations, etc. that hamper warehouse productivity thus raising the overall logistics cost.

Automation resolves all these issues.

ROIs often are calculated considering improvement in factors such as efficiency, speed, accuracy, round the clock operations, productivity, minimized errors etc. and pitched against the initial investment

Improved operational safety Large warehouses pose dangerous working environments even if adequate safety measures are adopted, implemented and monitored. Storing, retrieving at heights, conveyance using

fork truck, foot traffic, handling bulky loads, operating in subzero environment etc. are common scenarios in daily warehouse operations. Even with a proper PPE, safety of operators isn’t guaranteed when working in hazardous environments. Humans make mistakes.

When mistakes occur while operating in stressful environments or heavy machinery such as forklifts, it can result in a tragedy. Automation allows workers to work smarter and safer, creating less workplace injuries by taking over the dangerous repetitive tasks. Lifting, carrying, moving, storing (even at tall heights) heavy loads becomes automated thus removing manual labor from hazardous environments and re-allocating towards safer and more value adding tasks. This becomes more relevant in frozen or temperaturecontrolled warehouses.

No two warehouses are alike.

Automation can transform your warehouse into a facility that does exactly what you want and when you want it. The key is to determine objectives of automation and align it with the business strategy. For instance, an objective could be to double throughput in the existing warehouse, maximize the space utilization or achieve a 24x7 operation with improved productivity, etc.

It is also very important to think through the end-to-end objectives of automation. There is no point automating one process only to create further bottlenecks. A classic example is automating the internal inventory storage without considering what bottlenecks would be generated in the dispatch process and subsequent conveyance of goods to shipping docks.

By automating a process, you will generate plenty of capacity but shift the bottleneck further down the process.

For this, break the processes down into distinct areas. You achieve a firstcut result by tackling only part of the larger problem and then work your way through.

You must understand that automation solution should be flexible and modular. Flexible automation gives you the control over processes and offers ability to scale further.

Reference: Hayer’s scale of Automation Auto level

Unload (inbound transport)

Receiving

Putaway

Replenish (to picking)

Storage

Pick (grip)

Pack (place)

Consolidation (orders)

Loading (outbound transport)

L0

Man

Man

Man

Man

Man

Man

Man

Man

Man

L1

Man

Man

Man

Man

Man

Auto (Travel) Man

Man

Man

Man

L2

Man

Man/Auto

Auto

Man

Auto

Man

Man

Man/Auto

Man/Auto

L3

Man

Man/Auto

Auto

Auto

Auto

Man

Man

Man

Man

L4

Man

Auto

Auto

Auto

Auto

Auto

Man

Man/Auto

Man

L5

Man

Auto

Auto

Auto

Auto

Auto

SemiAuto/Man

Man/Auto

Man

L6

Man

Auto

Auto

Auto

Auto

Auto

Auto

Man/Auto

Man

Man: Manual | Auto: Automated

Automated Storage and Retrieval Systems (AS/RS)

Flexible automation solutions In reference to the table above, there are some flexible and modular automation solutions that fit all levels of automation. In addition, any level including LO will benefit by deploying a warehouse management software platform that enables positive control over process and inventory. Let’s look at some of these:

Automated Guided Vehicles (AGVs)

The next evolution of the warehouse requires automation solutions that allow operators to remain competitive in the near-term while enabling flexibility in the long term. That means automation that can be scaled and reconfigured easily, leverages the full power of data to optimize operations in the midst of change and integrates new technologies as they become available.

Warehouse environments that store materials on pallets or in a bin/ tote can maximize throughput and storage density, while reducing energy consumption and keeping costs low, with stacker cranes and shuttle systems.

Cranes or shuttle systems provide efficient, automated storage and retrieval of up to 60% more goods in the same space compared to manual systems.

For smaller size products, modular shuttle systems offer double- to quadruple-deep storage of totes, trays and cartons. Storage and retrieval vehicles are available with load handling

12 CELERITY March - April 2019

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What to automate?

Now that we have established why automate, let’s look at what can be automated…

devices in either fixed or adjustable widths to handle different product sizes.

Managed by the software platform, these automated pallet, case, tray or tote storage and retrieval systems retrieve products quickly and efficiently based on manufacturing demand, dramatically increase storage density and support optimized transport.

transport solution in flexibility and scalability. If additional capacity is required, more AGVs can be added to operate alongside the existing ones.

They can be moved to another facility easily and one AGV can replace another during maintenance. Ideal for most types of material handling, AGVs safely and reliably fit into the manufacturing environment. Almost all of them come equipped with safety systems that can provide safe working environment for humans alongside AGVs with modern navigation options and customized load handling, they are efficient in highly complex logistics systems and simple A-B scenarios.

Good-to-Person Storage, Picking and Kitting Intelligent AGVs bring increased flexibility and efficiency to material / Intralogistics transport. AGV systems automate workflows by executing transport tasks based on optimized and flexible strategies managed by the navigation software.

They also provide the ultimate

Goods-to-person systems can be deployed to deliver goods to a person for picking and further processing.

These solutions are based on proven principles to boost efficiency, maximize storage space and make it virtually impossible to pick the wrong product thus improving efficiency several times.

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FOCUS

The core of warehouse automation is to gain the control of process, better manage the inventory and efficiently move goods between different processes.

Automation offers improved productivity, efficiency and operations scalability.

The investments that have been made in automation have paid dividends.

However, in some cases, just automating without alignment to long term strategy has resulted in diminished returns. Other important aspect is to correctly identify the current problems, think through end-to-end process and then look at automation for solutions. been made in automation have paid dividends. However, in some cases, just automating without alignment to long term strategy has resulted in diminished returns. Other important aspect is to correctly identify the current problems, think through end-to-end process and then look at automation for solutions. The technology, in the form of intelligent warehouse management software and flexible automation is available today and are creating competitive advantage by reducing costs, increasing throughput and responding faster to changes in market demand.

Simple goods-to-person solution that uses mobile robots to quickly transport goods, provide better use of available space, higher throughput and minimized errors. Another goodsto-person system employs a swarm of mobile vehicles to deliver racks of products to picking workstations. Over time, the system software automatically learns which products have a higher rotation, storing them handy to ensure faster picking times.

Case and pallet conveyors

a wide range of requirements and can carry loads up to 1,500kg.

Smaller conveyor system can transport a wide range of small loads like totes, trays and cartons of up to 50kg. These systems can be used to connect AS/RS to different zones (picking, shipping, packing etc.) and ensure smooth material flow between them.

There are many such proven automation solutions that are being deployed wordwide in warehousing environments to manage, store and move goods efficiently. Warehouse management softwares have the power to integrate these various components together to improve visibility and flow across multi-stage warehousing operations.

Change in the making A variety of conveyor systems are available for use in warehousing operations. Multi-function conveyors provide energy-efficient transportation of goods with both light and heavy loads. They can be configured to meet

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The core of warehouse automation is to gain control of the process, better manage the inventory and efficiently move goods between different processes. Automation offers improved productivity, efficiency and operational scalability. The investments that have

Rupesh Narkar is a seasoned professional with extensive experience in the field of logistics automation. He has a Master’s degree in Engineering Management (USA) with a Bachelor’s degree in Mechanical Engineering (India). He is currently the Director of Sales for Swisslog Logistics, Inc. His interests include designing, selling and implementing logistics automation solutions throughout Americas. He has authored articles and spoken at events for logistics automation industry in the USA.

PERSPECTIVE

Interim Budget 2019-20 Decoded On February 1, 2019, Finance Minister Piyush Goyal released the Interim Budget for the year 2019-20 and made numerous changes in different sectors aimed at benefiting the farmers, the middle class and the unorganized sector. Unorganized sector in India is growing manifold affecting people in the rural areas and rapidly making its way into urban areas. Though the logistics sector falls under the head of organized sector, it needs a lot of development and changes for better functioning. Let’s hear it from the industry stalwarts on their perspectives and analysis on this Interim Budget…

Mr. Sunil Duggal, CEO, Dabur India Ltd. Finance Minister Piyush Goyal’s Interim Budget 2019 can be summed up as a series of SOPs for the middle class, farmers and millions of employees in the unorganized sector. Not only does he promise to put more disposable income in the pockets of Middle-Class India, he is also seeking to improve the quality of life of people at the bottom of the pyramid, particularly the small and marginal farmers, and unorganized sector workers. In short, it is a great Budget that should spur consumption.

The government’s decision to allocate Rs60,000 crore for MNREGA and another Rs19,000 for construction of rural roads under Gram Sadak Yojana, coupled with the increased interest subvention scheme for distressed farmers and the modest farm support scheme offering income support for marginal farmers tick all the right boxes when it comes to fueling the Rural and Agrarian Economy. The minister also announced a social security coverage for workers in the unorganized sector. These are steps in the right direction and would go a long way in improving their quality of life.

But the biggest beneficiary this year is Middle-Class India. The government decision to exempt tax on an income of up to Rs5 lakh for individual tax payers and an increase in standard deduction to Rs50,000, the hike in TDS threshold for home rent and higher Capital Gains tax exemptions under Section 54 are big-ticket reliefs for the Aam Aadmi. I am confident this Budget would boost overall consumer confidence and play a catalyst for demand generation for branded consumer staples and consumer products.

What’s also heartening to see is the government’s commitment to long-term reforms while addressing a changing international tax landscape. The decision to process Income-Tax returns within 24 hours and immediate payment of refunds, in addition to anonymizing tax scrutiny within the next two years to beat corruption and increase ease of process are steps that will create the foundation for a new-age India. The Interim Budget, I feel, has successfully laid down the blueprint for creating an enabling framework that would promote growth. However, the upward revision in fiscal deficit target to 3.4% of GDP for 2018-19 and 2019-20 remains an area of concern. Also, there is not much clarity on the government vision and strategy for improving infrastructure and job creation.

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PERSPECTIVE

PERSPECTIVE

Pawan Agrawal, Executive Vice President & Head – Finance & Investor Relations, Marico Limited

Kartik Shah, Head – SCM & Logistics, Sennheiser Electronics India Pvt. Ltd. The Union Budget for 2019-20 can be summed up as a series of benefits for middle class, farmers & unorganized sector workers. Simultaneously, it also focused on infrastructural development in rural India by allocating Rs19K crore for Gram Sadak Yojana (one of many initiatives), though this will benefit them but seems to be more focused towards upcoming elections. One more initiative announced to reduce the level of corruption is by establishing process framework (within next 2 years) for anonymizing tax scrutiny (hope intent will not get diluted while implementing) in addition to process the income tax refund within 24 hours. However, it is not clear that from where fund will come to allocate money to schemes announced except one which is extending the limit of TDS on bank deposits & small savings, which will attract new depositors to some extent. Again, there is no discussion on how industries will grow and how employment will generate for young India.

Anshu Budhraja, CEO, Amway India The interim budget presented by the Government of India provided a holistic outlook and comprehensive coverage to optimize growth, while addressing inclusive and sustainable development. The measures announced to aid digital inclusion, provide comprehensive healthcare and wellness systems, increase consumer spending, strengthen the agricultural sector and strengthen India’s entrepreneurial spirit and the opportunities, thereof, are commendable.

The enhanced focus on digitalization would open up possibilities for consumer sectors to reach larger masses more effectively and economically.

Transformational reforms such as the GST and demonetization would not have been possible without the creation of progressive institutions such as FSSAI, Niti Ayog and DIPP and the strong leadership they exhibited in implementing them amidst challenges. The public private partnerships forged by these institutions will serve to be a powerful enabler in maximizing the impact of social, economic and financial inclusion in the country.

While we are pleased to see the focus on boosting entrepreneurial capabilities and measures for women development, Amway strongly believes that direct selling can play a crucial role in fueling the economic growth and in creating job opportunities for women and youth, at large. We hope to see renewed focus on the direct selling industry in the near term, to truly realize this industry’s potential to contribute to the country’s growth and job creation. We were also hoping for a reduction in the corporate tax rate from 30% to 25% for companies exceeding Rs250 crores in turnover. Overall, the budget helped consolidate India’s growth agenda and introduced measures to strengthen the nation’s continued progress, for a large section of the country.

PV Sheshadri, CEO, Future Supply Chain Solutions Ltd The announcement of the proposed Interim Budget 2019 with an agenda to present “Rise of New India” is clearly a roadmap for development. The introduction of digitization in export/import transactions and leveraging RFID technology will prove to be a headway in fostering digitization on the usage of national and state highways. Setting up of more warehousing facilities in tier II and tier III cities will boost employment opportunities and allow deeper penetration of goods & services for the end customer. Most importantly, we see the Government’s vision to improve all transport infrastructure like roads, airports, ports, etc., for multimodal connectivity will empower the sector. From a logistics standpoint, the Budget made an important announcement with respect to the development of highways in the country. This will enable quicker time to market and increase the visibility & reliability of the supply chain.

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The clear focus of the Interim Budget on boosting disposable incomes in the hands of rural Indians and the urban lower middle class is a welcome move for the consumption story of India, while the intent of the Government to avoid any significant deviation from the path of fiscal consolidation was visible. The thrust on improving ease of business and simplifying tax administration by leveraging digital technologies was another step in the right direction. The vision built on the principles of inclusive growth and equitable living in India augurs well for economy and the society in general.

Mr. Shubham Jain, Group Head & Vice President, Corporate Ratings, ICRA Ltd The capital outlay for roads, railways, and metro projects have been budgeted to increase by 12–19% in 2019-20 over the 2018-19 RE. The increased capital outlay is proposed to be supported by higher budgetary allocations in railways and metro projects, while it is to be primarily by way of NHAI’s internal and extra-budgetary resources (IEBR, which is largely through debt raised by NHAI) for roads. This would make the funding availability dependent on NHAI’s ability to increase IEBR significantly.

Capital outlay towards some key schemes of the infrastructure sector has also been projected to increase in 2019-20 BE. The capital outlay towards PMGSY is being increased by 22.6% to Rs19,000 crore, that of PMKSY by 15.3% to Rs9,516 crore, AMRUT and Smart Cities Mission (Urban Rejuvenation) by 10.6% to Rs13,900 crore in 2019-20 BE over 2018-19 RE. On the other hand, budgetary allocation towards NIIF remains modest at Rs1,000 crore. NIIF, India’s sovereign wealth fund, which was proposed to have a corpus of Rs40,000 crore in FY2015, has gradually started gaining traction. Given the huge capital requirement for the infrastructure sector, NIIF can play a vital role in augmenting available capital for the sector. A higher allocation would have provided more visibility to NIIF for investments in the country’s infrastructure.

Rajesh Kumar, Legal Advocate Indian logistics sector is currently worth around $160 billion and is assured to grow remarkably over the next two years. Few of the areas of the logistics sector that need to be worked upon for its better functioning and efficiency include Infrastructure Enablement; Enhanced Regulatory Mechanism; and Developing Technologies.

Interim Budget 2019-20 had focused on not all but few of the areas that will help the sector to improve in coming years both from the suppliers’ and consumers’ point.

Rationalization of customs duties and the procedures involved to promote the government’s ‘Make in India’ Initiative will uplift the budding entrepreneurs as the Government has abolished duties on 36 capital goods. Further, the procedure involved in importing duty-free capital goods and inputs for manufacture and export have been revised, coupled with introducing a single point of approval under Section 65 of the Customs Act, 1962. In addition, to meet the growing demand of the economy and improve India’s export and import transaction, Indian Customs is introducing full and comprehensive digitalization of export/import transactions and using Radio Frequency Identification technology to its maximum advantage so that it may improve export logistics.

Additionally, the Finance Minister declared that there would be a jump of 21% budget allocation in the North-Eastern region at Rs58,166 crore, which may unplug the unused logistical productivities of the region. To empower the logistics sector, ministry has laid weightage on inland water development and to accelerate inter-state freight movement, e-way bills will be simplified. One of the biggest initiatives made in the sector is the flagship programme of Sagarmala along the coastal areas of the country, which will develop the ports concerned for faster and easy handling of import and export cargo. For the first time, container freight movement has started on inland waterways from Kolkata to Varanasi. Government will introduce container cargo movement to the North East as well, by improving the navigation capacity of the Brahmaputra river.

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COVER STORY

COVER STORY

FINANCING SMALL FOR

BIG growth Supply Chain in India is seeing a slow but sure transformation and has a cascading impact on almost all aspects of trade and retail. One of the powerful growth drivers to have emerged from this is Supply Chain Finance (SCF). What exactly does SCF mean and how does it help steer the wheels of growth? This cover story aims to unlock the true value of SCF in the post-GST era with valuable insights from the industry veterans…

Litesh Majethia, Senior Vice President & Head – Supply Chain Finance, Bank of Baroda

S

Three waves of growth in Supply Chain Finance Wave 2: Buyer Solutions Approved payables

Wave 1: Supplier Solutions Receivables Finance Rapid growth due to constrained bank credit

Info

Info

Deepening in less-established markets

Rapid growth as MNCs place increased focus on supply chain integrity Dynamic discounting fuelled by excess Corporate cash

Rise of new providers and platforms Demand extending into larger corporates

Rise of new platform providers/marketplaces

UPPLY chain management has historically been focused to ensure right goods are delivered in the right quantity and the right place and time.

New age supply chains need to deliver all the value chain drivers at the ‘right cost’ – that’s the distinguishing factor between competing supply chains.

Effective working capital management (payable/receivable/inventory) – unlike before, is a now a key deliverable for effective supply chains. Also, global supply chains have more links than ever, and not all those links may completely be in sync when it comes to payments, cash flow and financing – hence the

India’s top-down digitalization of the country’s financial systems has helped create an environment in which this sort of rapid innovation cycle is becoming the norm. Bank of Baroda’s clear focus on developing an end-to-end digital platform enabled our Supply Chain Finance product to be one of the leading working capital finance providers in the banking industry. I agree it is just over one year since we launched but since we entered late, we could build a sophisticated product with all the latest functionalities in the system, which is winning us the trust of our customers and we are able to build our business rapidly.

need for Supply Chain Financing (SCF), highlights Vickram Srivastava, Delivery Head – Supply Chain, GDSO, Zydus Group.

Technically speaking, SCF is a Short-Term Working Capital finance provided to dealers/suppliers (“Spoke”) having business relationships with large corporate (“Anchor”) to optimize working capital requirements of both Spoke & Anchor. “Supply Chain Finance is a fine blend of Bill Discounting & Overdraft product with the essence to optimize finance & flexibility for the customer. All transactions are linked to a base document (Invoice) between the Anchor and the Spoke. It accelerates the cash flows and the finance is available

at a relatively competitive pricing. It is like an efficient fuel at lower cost for corporates. This allows companies to churn money faster and rotate your business in many more cycles, which will ultimately augment your sales and profitability,” shares Litesh Majethia, Senior Vice President & Head Supply Chain Finance, Bank of Baroda.

On similar lines, Saurabh Batra, Director – Financial Services Risk Management, Ernst & Young, states, “SCF provides short-term credit that optimizes working capital for both the buyer and the seller. It generally involves the use of a technology platform in order to automate

PLATFORMS Financing

SELLER

BANK

BUYER

Wave 3: Convergence of buyer and supplier solutions New business models New analytics-driven solutions Info

Extending financing earlier in the production cycle

Info

Integration of financial and non-financial solutions © 2017 Oliver Wyman

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COVER STORY

Saurabh Batra, Director – Financial Services Risk Management, Ernst & Young

transactions and track the invoice approval and settlement process from credit disbursal to the payment on due date. Supply chain finance programs typically aim to build stronger supplierbuyer relationships by offering and participating in a mutually beneficial working capital optimization, which results in early cash realization for suppliers and optimized payment terms for the buyers. The result is better working capital, improved relationships between parties, and a stronger supply chain.”

The best way that buyers can build quality relationships with their suppliers is by offering them tools to manage their working capital. At present, Banks, NBFCs and FinTechs have started to play a valuable role in facilitating this collaboration. Technology-led solutions, enabling last mile transaction information between trading partners; has made SCF programs to become more focused towards the untapped mid-size and small corporate segment.

In line with this, we are seeing the emergence of multiple fintech solutions, which are truly expanding the sources of funding alternatives available to mid and small companies today.

Relevant across multiple industries, this offering has evolved into a muchneeded component that drives value to sectors like commodities, electrical & electronics, consumer durables, FMCG & agro based industries to finance their supply chain.

Market size Based on the latest estimates, the SCF

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COVER STORY

The advantages for supply chain financing will trickle down to both, the supplier/distributor and the anchor associated with the program. While the anchor can optimize his working capital requirements by managing his payment terms efficiently, the faster payments generated for the supplier lead to improved buyer-supplier relationships. Moreover, credit ratings of the suppliers no longer restrict them from getting access to funds as the finance facility is based on the anchor’s financial strength.

Additionally, a program such as dynamic discounting of invoices optimizes the discounting opportunity available to the buyers; providing an opportunity to maximize treasury cash yield and reducing cost of goods sold, thus enhancing the Return on Capital Employed (ROCE) for the investors.

market is approximately USD 10 billion, as highlighted by Sandeep Chatterjee, Senior Manager – Technology Consulting, Deloitte Touche Tohmatsu India LLP. Key Players in this space include State Bank of India, HDFC Bank, Standard Chartered Bank, Axis Bank, IndusInd Bank and Tata Capital. The market is mostly fragmented between PSU Banks (SBI, PNB, etc.), private Sector Banks (HDFC, Axis and others), MNC Banks (Standard Chartered, HSBC, etc.) and NBFCs (Captive Finance companies of corporate such as Tata Capital, Aditya Birla Finance, etc.). The SCF Market share is further broken down as SBI holding 18%, HDFC 21%, ICICI Bank 12%, Standard Chartered 13%, Axis Bank 11%, IndusInd 5%, others 20% for Channel Finance (Rs400 Billion). In terms of Vendor Finance, which is close to $4 Billion market, SBI holds 16%, HDFC has 24% share while Kotak commands 10%, MNC Banks have 15% and others have 35% market share.

According to Saurabh Batra, the size of any SCF market depends on extent of unmet funding needs of the SME segment. As per a CRISIL study in 2011, the untapped market for SME funding in India is more than Rs50,000 crores. There is another research from McKinsey that points out to a global USD 3.1 trillion gap in the funding of SMEs out of which non-developed nations require around USD 1.7 trillion.

The current market for supply chain finance in India is estimated to be more USD 10 billion and increasing due to new, innovative products entering this space.

Funding partners want to lend to SMEs as research shows that the ROI on credit to SMEs is far better than retail or corporate credit. SMEs want access to formal sources of finance simply because it is cheaper than any other form of finance.

Creating value Supplier payment terms are extending to historic lengths—an average of 66 days globally—wreaking havoc on supply chains as even well-established businesses close shop due to cash flow problems. Tighter credit since the Great Recession and the increasing globalization of supply chains are driving demand for better supply chain finance solutions. Consulting firm Bain estimates that the market for supply chain finance is expanding by 15-25% a year in the Americas and by 30-50% in Asia. But yesterday’s solutions won’t work in today’s market. Supply chain finance programs have been offered historically by big banks and financial institutions, but only to top-tier suppliers, not to the small and midsized businesses that need them the most.

During their initial research, Bank of Baroda team found that Small and Medium Enterprises (SMEs) contribute about 28% to the GDP but were inadequately served by the pre-existing banking system, largely relying on money lenders and private investors, with a funding gap of around USD 418 billion. SMEs have demonstrated high demand for finance, particularly debt, but of their total financial requirement,

over three fourth is either self-financed or comes from informal sources. The demand for finance has also seen an increase due to the implementation of the Goods & Services Tax since July 2017. This scenario led Bank of Baroda to launch Supply Chain Finance services for corporates and SMEs. “Building on the Jan-Dhan-Aadhaar Mobile, known colloquially as JAM capability, we saw an opportunity to enter the market for supply chain finance solutions, calculating that the combination of India’s digital modernization, its own capabilities as a bank, and a dedicated platform would allow us to offer better services to the underserved SME market. Historically, this sector has had little access to bank finance, relying instead on private borrowing and non-bank lenders,” shares Litesh Majethia.

In providing SMEs with access to cheaper bank funding and related business banking services, banks see an opportunity to enter the valuechain ecosystem. SCF services allow the bank to reach a large market quickly by leveraging the networks of large corporate customers while simultaneously improving the services offered to those large corporates. These corporate ‘anchor’ clients have networks of SME suppliers and distributors often running into hundreds and thousands.

SCF covers a range of financing processes that bring the needs of these different participants together to meet their working capital needs in a holistic manner.

Banks are aggressively pushing this offering due to its lower delinquency rates and easy disbursals. As JP Singh, President and Head SME, Axis Bank, aptly

Naveen Goel, Sr Vice President & Country Head – Supply Chain Finance, Auto-IndusInd Bank Ltd.

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states, “SCF is a win-win opportunity for all stakeholders in the supply chain ecosystem — the corporates, their suppliers and dealers.” It links small vendors to the large corporates. This enables SMEs to access credit at a lower cost with minimal documentation and lesser collateral. Negligible nonperforming asset (NPA) in the segment is a driving factor for banks, which they attribute to the inherent structure of the SCF. Bank of Baroda claims to have zero NPAs in this segment.

Critical need Global expert Robyn Barrett, Managing Member & Founder at FSW Funding, in one of her posts, elaborated that lowering financing costs and improving business efficiency would be attractive to any business – but lenders and their clients are realizing so many more benefits and advantages with SCF. Banks and lenders are generating new fee income by offering a product their clients find reduces cost of capital and extends the accounts payable (A/P) cycle. With SCF, companies are transforming their A/P department – saving time and money. Supply chain financing helps mitigate supply chain risks and empowers suppliers to optimize their working capital when needed, which improves relationships.

Buyers can improve working capital by extending pay terms, improve working capital through accounts payable and supply chain financing, and realize longterm benefits to their supply chain.

Highlighting the ever-growing need of SCF, JP Singh says, “Supply Chain Finance is primarily a partner linked program and as such partner’s involvement and its sales & credit

Decent growth in SCF is expected in coming times as there are many Banks, FinTechs, Small Finance Banks and NBFCs who have started offering SCF solutions and many corporates have started using SCF for funding of their supply chain. Regulators are focusing to fund SMEs through TReds (P2P Invoice Discounting Platform).

control processes play an important role. Dependency and vintage of supplier/buyers on the anchors play a crucial role in the success of any program in addition to the pre-requisite of strong consumer demand for the funded product line. Availability of adequate funds at the right time and affordability are the major drivers of financial value creation.” Adds Lalit Malik, Chief Financial Officer, Dabur India Ltd, “Positive GDP growth and consumer sentiments are leading to an increase in demand. In the short run, working capital cost has increased post-GST, through better supply chain networking and direct supplies, these can be minimized and can be converted into opportunities. Effective collaboration between the supplier and the partner in the value chain can result in a smooth supply chain and help in accelerating growth without increasing risk. Supply Chain Finance has the potential to bridge the void and emerge as the biggest value enhancer in the whole business.”

According to experts, the corporate linkages serve as an assurance. “Any default in repayment results in the stoppage of supply invocation by the large corporates, which can jeopardize the business’ existence. This acts as a deterrent for borrowers,” avers JP Singh.

Naveen Goel, Sr Vice President & Country Head – Supply Chain Finance, AutoIndusInd Bank Ltd., highlights the drivers of financial value creation as:  Selection of right corporate  Selection of right technology platform and financing partners  Cross-functional approach  Integration into a comprehensive procurement to pay initiative  Education to maximum corporates and their suppliers/dealers particularly SMEs about the products  Digitization.

Alluring advantages As per United Nations Trade Facilitation Implementation Guide, while buyers and suppliers can fund their own supply chains, SCF services reduce both the cost of capital and the risk of these operations, allowing clients to decrease their working capital requirements and improve their ability to raise capital. The advantage for clients is accompanied by considerable benefits for banks, as they can increase revenues by financing

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COVER STORY

Lalit Malik, Chief Financial Officer, Dabur India Ltd

COVER STORY Supply chain efficiency is the key backbone of any industry to have a competitive edge, especially in case of FMCG companies. Post GST, the networking optimization has become extremely important and considering e-commerce evaluation on the back of technological development and growth potential, supply chain investment has become a key strategic area of importance. In tune with changing times, technological advancement, better control and reduction in time are the key drivers of financial value creation in the entire value chain. Optimizing supply chain network and use of technology will help companies gain competitive advantage and supply chain finance has the ability to build on these and drive exceptional performance for organizations.

the supply chain working capital for their clients, specialize by expanding into their entire supply chain, crosssell other products and services (such as foreign exchange services) to other operators in the supply chain, and thus increase their client base.

In a recent report, Anil Walia, EMEA Head Supply Chain Finance at Deutsche Bank AG, stated, “The success of a buyer-led supply chain finance program is often measured by the efficiency and speed of the on-boarding process.

A well-executed program will clearly demonstrate to the supplier base the working capital benefits; enroll them quickly and in number; and put little burden on suppliers in order that the output is positive for all.”

Seconds Litesh Majethia, “For the Supplier/Vendor, early payment reduces financial dependence on the buyer. It reduces the cost of capital by leveraging buyer’s credit rating as well as increases certainty of cash flows. SCF provides post-shipment; WIP financing and financial discipline. For Anchor, the product minimizes investment in working capital, reduces cost of goods sold (COGS) and total cost of borrowing.

The entire automated process reduces administration cost and increases cash flow as well as enhances stability of supply chain. The SCF platform ensures availability of goods for end users, thereby increasing sales.

When it comes to dealers, it provides much-needed working capital for purchase of inventory at lower cost of funds than other working capital products. This also increases sense of financial discipline due to short duration & monitored end-use of funds.

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The Digitization of the process with real-time alerts and reports reduces administration cost & augments sales for the dealers.

Vickram Sachdeva enlists some of the advantages that augur well for supply chain financing:

FOR BUYERS  Being able to increase their working capital  Buyers get an additional negotiating lever to use with their suppliers  Buyers can also earn suppliers’ loyalty and goodwill

FOR SUPPLIERS  Giving preferred suppliers new ways to access funds at discounted rates  Suppliers benefit from SCF not only by gaining liquidity but by having more options for when they can receive payment  Supplier’s financing transaction costs are lowered too  Any risk of a buyer’s insolvency is

covered because the funder bears that burden

Banking on each other’s competencies In this complex maze, enhancing supply chain efficiency must be a daunting task. Vickram Sachdeva remarks, “The finance people are incentivized to improve working capital while supply management wants to cement relationships with suppliers to gain the best possible quality, pricing, availability, delivery terms, responsiveness and new ideas—and those sets of objectives can collide when it comes to paying suppliers. In short, SCF cannot be viewed as a temporary fix or a quick patch for a one-off problem; it has to be applied strategically.”

Such financing programs cannot be effective unless they are applied as part of a coherent business strategy that balances the legitimate concerns of the buyer’s finance department with

SCF promotes efficiencies in accounts payable/receivable processes, including e-ordering and invoicing systems that connect buyers, suppliers and financing institutions. Buyers and suppliers gain visibility and control of cash flow using the newest SCF technology tools.

Vickram Srivastava, Delivery Head – Supply Chain, GDSO, Zydus Group

Supply chain financing is bridging the gap of MSME working capital requirements. SCF ensures timely funds into the existing supply chain. It gives the opportunity to increase liquidity and the ability to manage working capital by all parties at affordable costs too. These options are supported by hassle-free digital operations, which are flexible to accommodate customers’ requirements. A strong linkage between supplier/buyer, anchor and bank is a pre-requisite for any effective supply chain finance program. This goes together in building a long-term value proposition.

JP Singh, President and Head SME, Axis Bank

those of the company’s supply chain management experts. That calls for consistent, open collaboration between cross-functional teams. The answer lies in less focus on payables as a negotiating point and a more open, visible buyer-supplier relationship that’s enabled by IT. “We should negotiate around adding value between sellers and buyers – understanding the cost impact relative to the financial benefit is critical to ultimately determine whether financing makes economic sense or not.

SCF will work if it meets two key goals, one of reducing cost of procurement (easing of working capital pressure) and second, if it works reduce supplier/ dealer risk to supply chain continuity and disruption,” elaborates Vickram Sachdeva.

SCF not only aligns itself well with the growth of open account trading, but also maximizes the efficiency gains made possible by the introduction of improved information technology (IT)-driven supply chain management monitoring. For instance, managing the supply chain more efficiently – through online data management platforms – has reduced corporate inventories and brought industries closer to justin-time production. This has meant smaller, more frequent, shipments replacing single large orders.

Talking about developing a close to perfect model to harness greater collaboration, which is ably backed by technology, Litesh Majethia shares, “When we were brainstorming about the nuances of the product, we realized that a modern digital delivery platform would allow us to take share from the non-bank lenders and narrow the gap between us and the other banks already in the space.” A central tenet

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of its thinking was that the platform had to be able to give the bank a good understanding of the clients’ financial needs and status, allowing it to offer advice and services at strategic moments.

A seamless, intelligent and digitized platform would help transactions & money flow faster to its clients.

“At the same time, the bank benefits from data on the clients’ creditworthiness and can monitor its own risk exposure closely. Though the main criterion of success will be how much it can ‘grow the book’ – that is, how many new clients we can attract to the service – with a view to maintain rather have a good book than a big book,” emphasizes Majethia. “In cognizance to this, we implemented a new comprehensive supply chain finance platform, which focuses on centralizing, simplifying and accelerating transaction processes,” he adds.

This solution augments the strengths of companies that are driving the country’s growth, thereby opening new financing opportunities for companies of all sizes via a cuttingedge digital products. Bank of Baroda has received positive and encouraging response from many of its customers and they are happy that SCF product is not only delivering value in terms of speed of transactions and information but is very swiftly acquiring dealers and vendors. This product has empowered the Bank and has given it a competitive positioning in the market by working on the key pillars of growth – digitization, centralization, and faster & seamless Transaction processing.

By increasing automation and straight-through processing, while enhancing reporting capabilities, the SCF platform reduces risks while uplifting

satisfaction of our clients. The SCF technology & processes have been designed to ensure faster approvals, seamless transaction processing and availability of finance to the SME customers. “We have kept the design & framework of the technology & processes for the Supply Chain Finance product such that it augments the growth drivers for both Large Corporates and MSME clients. The strategy augurs well with our endeavor to support our clients’ ecosystem partners and leveraging their trade relationship to augment their business,” he adds.

Turning advantages into objective outcomes, Naveen Goel avows, “An effective Collaboration can be established through collaborative communication and information sharing”. Once it is achieved, it can result into:  Reduced risk for financers due to diversification & defined end use of the funds  Shorter lead times  Improved customer service metrics  Visibility into customer demand and supplier performance  Earlier and quicker decision-making  Lowers cost of funds for SMEs due to leveraging on the Credit strength of the large Corporate  Better and Faster MIS to all stakeholders in the value chain.

Backed by technology Digital availability of information has led banks and other institutions to provide funding to vendors more efficiently.

Digitalization has enabled these interactions to become smoother and easier to implement. The integration of all relevant data on a single platform also helps the firms to manage the key

23

COVER STORY performance indicators.

“The transactions happening through these platforms also creates a transaction history that can act as a pseudo credit rating for any business.

Further, information like whether a corporate buyer pays its suppliers on time, their order performance, any history of late shipments or cancelled orders will be used to assess risk rather than credit ratings in a new, performance-based financing when end-to-end automation for this practice is achieved. These histories are becoming better standard for determining discounting rates than credit scores and enable small but reliable suppliers gain access to low cost capital,” adds Saurabh Batra.

According to Naveen Goel, the future of supply chain financing will be based on key developments such as Artificial Intelligence; Cognitive opportunities; Blockchain & Distributed Ledger Technology; FINTech; P2P Lending; Robotic Process Automation; Cyber Security; and Digitization.

By now, it is quite evident that emerging technologies such as artificial intelligence, natural-language processing, and robotic process automation will play a definitive role in bringing about efficiencies in the SCF space. However, to achieve commercial success and revenue growth, banks must try to replace their conventional risk assessment techniques and compliance models (that are balance sheet and P&L statements oriented) with more dynamic models that can make use of both quantitative and qualitative tools.

Saurabh Batra elaborates, “In times to come, we see technology driven SCF solutions to dominate the market with online platforms and cloud-based solutions enabling greater integration and flow of information between the stakeholders. The move towards automated processes and their increasing acceptability of technology has opened opportunities for end-toend automation of supply chain, greater efficiency, increased transparency, greater data collection capabilities and better underwriting capabilities. This will provide the financing partners to fund both forward and backward participants across the value chain. Some of the most interesting solutions have emerged in the buyer led financing space in

24 CELERITY March - April 2019

Drivers of Financial Value Creation

• E-commerce: In line with the current trend of Indian Economy moving towards online sales from offline platforms, banks have a huge opportunity to fund different supply chains.

• Integrated Approach: Opportunity for banks to fund both forward and backward integration along the value chain. Some of the banks (notably HDFC Bank) have worked to their advantage in this space.

• Online Platforms/Automation: This can provide a big leverage in terms of both integration and flow of information for the banks & other stakeholders.

• Potential Sectors: Focus on less tapped potential Industries i.e., commodities, electricals & electronics, consumer durables, FMCG & agro based industries to finance their supply chain.

Key Barriers to SCF

• Lack of information about supply chain financing and attractive avenues • Reliance on traditional channels of funding like utilizing personal funds and cash credit • Balance sheets not capturing the entire financial position of customers, leading to sub-investment grade financials • Acceptability and awareness about the product among stakeholders such as channel partners and suppliers • Concentration on few selected industries only, majorly organized industries such as automobiles sector • Onboarding & monitoring of dealers/suppliers due to geographical spread • Diversion of funds for other purposes by the Suppliers/Dealers • Too much paperwork leading to higher TATs at times • Available capital, liquidity & regulatory requirements for banks • Lack of proper systems & infrastructure (for KYC, etc.)

• Low pricing – managing cost of fund • Non-availability of a common platform for financers • Unsecured nature of lending

form of dynamic discounting, reverse factoring, approved invoice financing.

We are also seeing innovative ways of monetizing AR through digitization of invoice discounting and factoring solutions emerging as working capital optimization for supplier. We believe that we are in the phase where greater digitization, transaction data, analytics and real-time capabilities of cloudbased systems will define the new age SCF solutions.”

Blockchain technology will soon be put to use. 11 of the largest Indian banks are joining hands together to initiate the very first blockchain-linked loan providing system. A live network is being set up through which more systematic and secure supply-chain financing will be achieved.

RBI has also recently taken steps to allow three players to launch Trade Receivables Discounting System (TReDS), which is a digital platform where small businesses (MSMEs) can get access to capital by auctioning their trade receivables. The market is awaiting more players being allowed on such platforms including HNIs and

asset management companies, which will expand the SCF market and add the much-needed depth around funding partners.

Talking about the interesting times ahead, JP Singh concludes, “India is poised to become a USD 10 trillion economy by 2030. The growth will be felt across sectors. The growth will result in strengthening of the supply chain ecosystem and increase awareness and demand for supply chain financing products. GoI’s various initiatives like Make in India, GeM, TReDS, etc., will give a further impetus to MSMEs to enter the supply chain ecosystem. Leveraging the capabilities of technological advancement, we will soon see a revolution in the way we keep the entire supply chain funded as well as reduction in payment cycle for MSMEs. Cash payments have already seen a decline owing to the push towards digital transactions. Features like instant discounting of invoices, transfer of funds, GST invoices funding, etc., already exists and will only improve the experience going forward.”

OPINION

AEO – TAKING INDIA GLOBAL In the wake of increasing global trade and security threats, Authorised Economic Operator (AEO) will be the game changer in near future for every importer and exporter, enabling overall supply chain security and trade facilitation, opines Krishna Barad, Associate Director- Customs & Trade Compliance, PwC.

Custom Broker

Warehouse Operator

Importer

Exporter

AEO

challenges. Developing an Authorised Economic Operator (AEO) programme is a core part of SAFE.

consolidators, intermediaries, ports, airports, terminal operators, integrated operators, warehouses and distributors.”

AEO is a flagship program introduced by World Customs Organization (WCO) under SAFE Framework of Standards to secure and facilitate Global Trade to enhance international supply chain security and facilitate movement of legitimate goods.

It is a Customs and Trade Partnership to secure the supply chain with benefits and a commitment to adhere the custom compliances. As of March 2015, 168 out of 180 WCO Members have signed Letters of Intent committing to implement the SAFE Framework.

WHAT IS AEO?

AEO – CATEGORIES

According to WCO, an Authorised Economic Operator (AEO) is “A party involved in the international movement of goods in whatever function that has been approved by or on behalf of a national Customs administration as complying with WCO or equivalent supply chain security standards. AEOs include inter alia manufacturers, importers, exporters, brokers, carriers,

There are three tiers for Importer and Exporter- AEO-Tier 1, AEO-Tier 2 and AEO-Tier 3. All three tiers provide for varying and incrementally increasing level of facilitation to the status holder.

This tiered approach allows Indian Customs to cater to the differentiated need of the MSMEs while ensuring adequate security preparedness. There is one more category of AEO- LO that

Custom Authority

Shipping Line Freight Forwarder

T

he growth of global trade and increasing security threats to the international movement of goods have forced customs administrations to shift their focus more and more towards securing the international trade flow and away from the traditional task of collecting customs duties. Recognizing these developments, the World Customs Organization (WCO) drafted the WCO Framework of Standards to Secure and Facilitate global trade (SAFE). Several standards have been included in the framework that can assist Customs administrations in meeting these new

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25

OPINION

OPINION

Key Benefits for Importer and Exporter upon AEO registration: (Benefits may vary according to the TIER) High Level Facilitation

24 X 7 Custom Clearance (No MOT)

Client Relationship Manager (CRM)

Direct Port Delivery (DPD) for Import

Container Seal Verification – Import/Export

Grant of Rebate / Refund in case of complete application

Direct Port Entry (DPE) for Export

Document Verification – Import / Export

Trade Facilitation by Foreign Custom Administration under Mutual Recognition Agreement (MRA)

ID Cards for entry at Custom Premises (Port / ICD / CFS)

Deferred Custom Duty Payment

Container Scanning

Separate Earmarked Space at Custodian Premises

Faster Drawback Disbursal within 72 Hours of EGM Filing

Self-certified documents in place of Original Documents

Bank Guarantees Exemption

Priority of assessment BE / SBs selected

Risk based approach in case of requirements

Investigation

Self-sealing of export goods

On Request – Site Inspection

Dispute Resolution at Adjudicating Authority

Faster Clearance of SVB

Client Relationship Manager (CRM)

Post Clearance Audit

Facility of MRP Sticker pasting at premises

Grant of Rebate / Refund in case of complete application

E-mail intimation of vessel arrival

Access to Import Export data at ICEGATE

Trade Facilitation by Foreign Custom Administration under Mutual Recognition Agreement (MRA)

Key Supply Chain Performance Indicators for being an AEO are:  Fast Custom Clearance Cycle Time  Reduction in Detention/Late Filing Charges  Overall visibility about Customs Compliance & Operations

Facility of paperless declaration covers all other entities in the supply chain other than the Importers and Exporters.

INDIA’S JOURNEY IN AEO CERTIFICATION International trade is an essential element for the economic development.

In India AEO Certificate is issued by Central Board of Indirect Taxes & Customs (CBIC). It is recognition and appreciation of the commitment to secure the International Supply Chain.

India began its AEO implementation journey in 2011. Subsequently, the programme has been regularly updated by way of meaningful modification to align it with updated SAFE standards.

To ensure earnest upgradation in implementing the global standards of secure trade, the Indian AEO Programme was revamped in 2016.

These changes are also in line with Indian government’s vision of implementing ‘Digital India’ and ensuring ‘Ease of Doing Business’. This digitization will provide wholesome support to the applicants by allowing them to bypass the requirement of

26 CELERITY March - April 2019

physical documentation and submitting their application with the click of a button to ensure highest degree of ease in doing business for the applicant. The complete application will be processed online by customs officials and the AEO certificate will be relayed online to the certified entity.

PRESENT POSITION Indian AEO Programme has more than

2100 AEO accredited entities, of which around 1400 are AEO T1, 250 are AEO T2, 1 is AEO T3 & 450 are AEO LO. The driving inspiration is to have 4000 AEOs in foreseeable future through systematically acceleratory approach, while ensuring that the MSMEs grasp the inherent importance of security in supply chain and organically upgrade their security apparatus to be the champions of security as future AEOs.

Applicant Criterion for AEO  Applicant should be established in India having PAN, IEC, GST Registrations  Should have business activities for last 3 Financial Years  Handled at least 25 Bills of Entry/Shipping Bills in last Financial Year  Ability to show procedures and safeguards in terms of compliances, security, etc. and is financially solvent  There should be no show cause notice issued to them during last three financial years involving fraud, forgery, outright smuggling, clandestine removal of excisable goods or cases where Service Tax has been collected from customers but not deposited to the Government

In pursuit of the above discussed broad ideas and to cater to the special need of Indian trade, the Indian AEO Programme has been tailormade by reformative decentralization and facilitative digitization. The decentralization has made the process more efficient and seamless while the digitization has made it transparent and user-friendly.

Ease of doing business To further ease out the AEO process and meet PM’s ‘Digital India’ objective, the Chairman (CBIC) recently inaugurated an AEO Web Application (aeoindia.gov. in). By this web application, the entire AEO process has been digitized to allow the application filing, processing & digital signed delivery of AEO certification over an online platform

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WAY FORWARD After having ironed out the nuanced challenges in implementing the AEO Programme as envisaged under Pillar II of the WCO SAFE Framework of Standards, India would want to make the processing holistic and complete the circle by building on its preparedness with respect to Pillar I and Pillar III of the SAFE Framework of Standards.

PILLAR I: Inter-governmental cooperation & MRAs – Over the past years, Indian Customs has collaborated with several foreign Customs Administrations to ensure prolific collaboration between our domestic Authorized Economic Operator Programmes. Indian Customs has signed two Mutual Recognition Agreements with the Customs Administrations of South Korea and Hong Kong. Two other MRAs with the USA and Taiwan are in final stages of conclusion. MRA with Uganda is already in pipeline, whereas initial discussions have begun after ‘letter of intent’ for signing of MRA has already been relayed to 15 major trade partner countries. Besides, India’s

position in South Asia posits it to play a vital role in helping the other countries in the region like SAARC & SASEC to develop their domestic AEO Programme and provide meaningful support to them in this direction.

PILLAR III: Other Participating government agency cooperation – Indian Customs is also actively working to bring other PGAs on board to ensure that its AEOs get a ‘Green Channel’ treatment by them by way of basic benefits like waiver of physical examination of consignments and categorization of AEOs in Low-Risk category by all PGAs. For the above, Indian Customs is proactively working to bring various government agencies working at the borders on board, for faster and seamless clearance of AEO cargo.

Krishna Barad has a post graduate diploma in Logistics and Multi modal transport and a diploma in export management.

He has a bachelor’s degree in Science (Electronics). Krishna has 25 years of professional experience in leading Customs & International Trade Compliance at various large Indian and Multinational Corporations. He has successfully obtained 4 AEO Registration at GE, 3 T2 registrations and 1 T1 registration. His is an expert in Custom Classification, Valuation, Import & Exports, AEO / C-TPAT; Free Trade Agreements, SCOMET Licensing Foreign Trade Policy, Project Imports, ITAR, ECCN, Watch List Screening, Trade Embargoes, Export Trade Control Laws - USA, Europe, India, Singapore, Japan, Malaysia, Australia.

US Sanctions on Trade etc.

27

OPINION

OPINION

Packaging

for a

better world Cost and time are key factors in raising the bar of logistical efficiency in consumer electronics. Packaging material is an important component to help lower the overall logistics cost and should be selected keeping in mind the material production cost, lead time and storage space. Mr Manmath K Mishra, Packaging Consultant, Innopack Packaging Consultants shares insights on optimizing logistics and inventory carrying costs.

F

AST-evolving technology and unpredictable life spans have been a characteristic of the consumer electronics industry, which has proven to be one of the fastest growing sectors in the last decade. This sector has its own unique challenges and the following major issues need to be taken into consideration: • Rapid product obsolescence, leading to unpredictable reordering cycles • Shorter fulfilment times to respond to spikes in demand • Reverse logistics to accommodate the 4-5% return rate • Sustainability issue, by giving equal emphasis to both packaging and product disposal.

• Chances of product or part mixing errors and pilferage • Fragile and costly products Packaging can be pivotal in addressing these key issues and ultimately contribute to a more efficient supply chain. To make the most of it, packaging should incorporate all the necessary requirements at the time of conceptualization itself. While conceptualizing the package design for electronic products, the two major safety concerns are Electromagnetic Interference and Electrostatic Discharge, from which the products need to be protected. This is done by introducing antistatic agents to the primary packaging, keeping in mind the sensitivity of products.

28 CELERITY March - April 2019

Cost and time are other major factors when packaging is conceptualized. When packaging material is selected, a perfect balance should be struck between cost, availability and the production lead time. To add to this, one should also aim for the packaging material to occupy the least amount of storage space. Paper-based packaging materials have proven to best suit these purposes and are widely used in the industry. All of these put together, make for a highly optimized logistics cost and result in a reduced inventory carrying cost. To ensure that the packaging is designed

keeping sustainability in mind, looking at concepts like packaging rentals can prove highly useful, and can also help address the issue of unpredictability in demand.

FITTING THE PURPOSE Keeping in mind the rapid product obsolescence of electronic products, packaging needs to be designed to fit multiple products. The size of packaging should be optimized in such a way that it may accommodate a range of products, depending on the requirement. This would immensely help avoid dedicated packaging for each SKU. There has been a history of large corporations around the world redesigning their packaging to reduce the dimensions by a certain margin to lower transit and inventory costs dramatically. Also, in the interest of sustainability, packaging material should be chosen wisely by avoiding EPS or thermocol, which are widely used for consumer electronics today. Since these materials are non-biodegradable and non-recyclable, it poses a serious threat to the environment- especially since India lacks the required infrastructure to recycle such materials.

Fortunately, the market is slowly starting to fill up with sustainable materials like starch-based cushioning solutions, recyclable film-based void filling solutions and paperboard and honeycomb-based fitments. These can be efficient replacements for EPS, and as time progresses, a higher competition in the market may lead to more optimized pricing. Adding reverse logistics into the mix could be a great idea to effectively managing disposal of the packaging material. These are some of the concepts that can be implemented in the interest of CSR activities and to optimize costs.

ADDRESSING THE HAZARDS DURING TRAVERSAL Addressing the issues of possible theft and piracy are major concerns for suppliers, considering the long history of pilferages that the companies have had to face. A variety of creative solutions are already available in the market that efficiently address some of these concerns. One of the design implementations involves a labelling system that is fit in such a way that a message is secretly sent to a

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predesignated message centre as soon as it is opened. Yet another concept employs a dyeing system upon opening the package, which may serve as evidence in case of theft.

Lastly, the transport worthiness of packaging proves to be the most important part of package design. To protect the product from transport hazards, four basic categories of traversal damage need to be addressedshock, vibration, compression and atmospheric damage. To ensure that the packaging material is designed to withstand each of these hazards, a laboratory test method is put in place, that simulates these conditions. The findings of subjecting the packaging material to these simulated conditions plays a vital role in the decision-making process. These tests also help evaluate the amount of packaging required to maintain product integrity. As a result, it helps make cost-saving decisions of removing excess packaging, while also improving customer satisfaction.

There are several standards available worldwide from different organizations like ASTM (American Society for Testing and Materials), ISO (International Organization for Standardization), ISTA International Safe Transit Association), IEC (International Electro-technical Commission) and TAPPI (Technical Association of the Pulp and Paper Industry). For India, BIS standards are also available related to transport package testing. To ensure top quality, packaging is primarily subjected tests like climatic tests, impact and drop tests, compression tests, vibration tests and altitude tests. Apart from these, if there are additional requirements, there are several tests that can be implemented to match specific needs.

CLIMATIC TESTING: Climatic Conditioning or Climatic Testing involves exposing a package or a product to different controlled levels of temperature and humidity inside a calibrated test chamber. This simulates a range of climatic changes that it may encounter during the distribution phase like changes in humidity or heat levels.

IMPACT AND DROP TESTING: Impact and Drop Testing are used to assess the fragility of a packaged product by simulating the shocks that the packaging or palletized product may

encounter while being handled. At this stage, the packaging material is evaluated against different repeatable impacts similar to those they may be subjected to in the distribution environment.

COMPRESSION TESTING: Compression Testing is a method for determining the behavior of packaging and or products under crushing compressive force.

Compression testing is used in both package and product design verification to determine the strength of their performance under varying compressive loads.

VIBRATION TESTING: Here, the ability of a package to withstand transport vibrations and to protect its contents can be measured by several laboratory test procedures. Sine and Random test methods are often used for vibration testing. The two test methods are not equivalent and may not produce the same results. Random vibration is the better simulation of actual transport vibration environments and is the preferred method for validation.

ALTITUDE TESTING: Altitude Testing is intended to provide for the anticipated variation in air pressure when products and packages, that may be sensitive to spikes in environmental pressure, are transported by air or by road over areas at high altitudes.

These five testing parameters can be effectively utilized to design a suitable transport pack which can address various aspects of transport hazards that the products and their packaging may encounter during the distribution cycle. This would lead to lesser damages to the product with optimum utilization of the packaging material.

Manmath Kumar Mishra is a qualified Packaging Technologist with over 12 years of experience with MNCs like Ranbaxy, Fresenius Kabi, Jubilant & Avantor Inc (JT Baker). He has wide experience in packaging development, specification management, vendor auditing and development, sourcing and purchasing functions, successfully delivering more than 200 packaging development projects. He holds a Master’s degree in Packaging Technology from Indian Institute of Packaging and PGD – SCM from CII Institute of Logistics.

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INTERVIEW

INTERVIEW

Debugging the Conventional “As more and more specialists emerge in different parts of the supply chain, the most difficult challenge for companies will be to withdraw from parts of the value chain, which they felt was their exclusive domain.

Fundamental redesign of supply chains based on core competencies and shared destinies will be the future change that companies will have to deal with, and the race is just about starting,” asserts Anish Tripathi, Vice President – Strategic Initiatives, NRB Bearings Ltd.

What are the interesting changes shaping up in the supply chain space?

Most Indian manufacturing companies have historically been highly integrated vertically, preferring to control the entire Supply Chain from within the Company, and thereby capture most of the value within. The primary constraint for structuring the Supply Chain was tax optimization. This led to inefficiencies and delays. With the coming of GST, the tax justification for constructing supply chains has gone out of the window.

Now supply chain components can be constructed purely based on operational efficiencies, so decisions can be made on the basis of factors like proximity to market, cost of supply, etc.

This change will now force companies to go back to the drawing board, take a fresh look at their core competencies, and question who is best able to best deliver on what part of the value chain like it happened in the telecom industry, it could lead to a fragmentation of the value chain, based on competencies.

We could see the emergence of specialist logistics providers (4PL+) who could do this job better, and companies might want to focus their energies on core activities, like product development, manufacturing,

30 CELERITY March - April 2019

customer acquisition, branding, etc. It is this fragmentation that will lead to investment opportunities, as players will be incentivized to scale, induct technology, etc. India’s manufacturing sector is probably 3-4 years away from the emergence of such players, but the seeds of such innovation have already been sown somewhere – it’s just that we don’t know where!

What do you think are the barriers to scale?

One of the biggest barriers to this is the cost of creating new capacity.

With India having amongst the highest interest rates in the world (REER rates), economic viability of projects gets pushed further away. Companies have become more circumspect about making investments, and delay capacity creation further. With the improvement in the logistics infrastructure, if cost of creating capacity can come down, which along with interest rates would include cost of capital goods (Customs, GST, etc.), we could see the beginnings of a manufacturing revolution in India. There is also a long overdue consolidation of players for true economies of scale, in most sectors. This will take time, as valuation expectations of even failed / underperforming companies are still sky-high.

What can be the foreseeable challenges in supply chain optimization?

For me, skills, technology and disruption are the biggest challenges. Besides FMCG, and to some extent the whitegoods sector, many companies have not really invested in their people as well as technology for supply chain optimization. There is a lot of new technology being developed, and much old technology that has long held promise (like RFIDs), might finally start delivering on their promise.

However, many technology vendors are small players, and might not have wherewithal to stay the course as the inevitable shakeout in the tech platforms. Companies that took bets early, might be left with tech that does not become standard. Funnily enough,

Many companies have not been able to attract the best talent into their supply chain functions. To top it all, attrition levels are pretty high. Skills are getting obsolete at a frightening pace, and most supply chain departments have aging staff. Not having visibility on the nature of the supply chain of the future is also making the task of selecting people as well as tech platforms even more difficult. it’s the last-adopters here who might stand to benefit.

Many have also not been able to attract the best talent into their supply chain functions. To top it all, attrition levels are pretty high. Skills are getting obsolete at a frightening pace, and most supply chain departments have aging staff. Not having visibility on the nature of the supply chain of the future is also making the task of selecting people as well as tech platforms even more difficult.

There is too much of infrastructure development happening in India and at a fast pace, be it the freight corridors, national waterways, trackable trucks and new highways, domestic air freight industry, etc. Each of these will force logistics planners to redesign supply chains almost continuously. The process of optimization will play out over a period of 3-5 years. Costs will initially go up, as lot of investments will need to be made, and will come down only when they get amortized over a period of time. Like they say, these are interesting times, and full of challenges, the oft-repeated holily, that we will not see companies competing with companies, but supply chains competing with each other. For this to happen, many sectors will need to get fundamentally restructured, and it will not necessarily be smooth or easy.

What are the things that need to be considered while selecting a 3PL? While the logistics sector is already preparing for the move from 3PL to 4PL, and maybe even to 5PL, this has not been and more so is not going to be as smooth as one would wish it to be.

There are many new players who have entered the logistics sector. Old players are trying to learn new tricks under the influence of the new generation.

The market is very fragmented and

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will see a consolidation in time. The problem is that players who appear very promising today on paper might not be around a few years down the line.

This is a difficult decision for supply chain professionals because changing a logistics supplier in the future is a very disruptive activity.

Having said that, one must take a call on who one wants to work with based on three factors, technology, people (not the promoters only) and financial stability. If a player satisfies these three criteria, the likelihood of taking a wrong decision comes down significantly. Of the three, being comfortable with the people who are going to be servicing you is the key.

That’s also the biggest problem that the sector is facing currently.

What are the ways in which collaboration between partners and suppliers can best be achieved?

In sectors like the auto industry, deep and abiding partnerships are built between the Auto OEMs and the vendors. This includes investment of time, money and effort in capability building, technology absorption, process improvements, etc. This philosophy has to become ubiquitous across sectors.

The only way the logistics sector can build the solutions that these disruptive times require, is if they know that they have long-terms partnerships with their key customers. Companies need to select no more than 1-2 suppliers, do a 70:30 split in business volume between them, and invest heavily in improving them, giving them better visibility on plans, and develop long-term partnerships. This is time consuming and difficult work but needs to be done.

What steps should companies take to enhance their supply chain efficiencies?

There are multiple steps that need to be considered to enhance supply chain efficiencies. There is a massive convergence taking place between supply chain practices across sectors.

Old traditional mind-sets and ways of working need to change. As more and more specialists emerge in different parts of the supply chain, the most difficult challenge for companies will be to withdraw from parts of the value chain, which they felt was their exclusive domain. For example, it must have been torturous for telecom companies to come to terms with the fact that telecom towers were best handled by specialized tower companies, and not they themselves.

Similarly, it is difficult for e-commerce giants to accept why they cannot be neutral marketplaces for others and be ‘privileged sellers’ against their competitors on the same platform, at the same time. The other area, which has been largely missed out, is that companies do not put the same amount of focus on improving their backward supply chain as they do on their forward supply chain. This is a costly error. The main point seems to be that after almost two decades, operational efficiency is back and how; and most companies are woefully under-prepared.

What has been the GST impact?

How smooth or challenging has been the transition process?

The core impact of GST on supply chains is yet to play out. Working capital requirements and other costs have gone up, although this has not really impacted overall performance significantly. However, most companies have got only rudimentary supply chain benefits until now, of improved transportation times due to the elimination of check posts, closing and opening some warehouses, etc.

These were the low hanging fruit.

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INTERVIEW

The only way the logistics sector can build the solutions that these disruptive times require, is if they know that they have long-term partnerships with their key customers.

Companies need to select no more than 1-2 suppliers, do a 70:30 split in business volume between them, and invest heavily in improving them, giving them better visibility on plans, and develop longterm partnerships.

This is time consuming and difficult work but needs to be done.

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The real benefits are yet to play out, as companies come to terms with what this freedom to redesign the supply chain entails. Fundamental redesign of supply chains based on core competencies and shared destinies will be the future change that they will have to deal with, and the race is just about starting. This transition process has been relatively smooth till now but does not promise to necessarily remain so in the future.

Where should the government focus its attention?

The government is helping by disproportionately focusing on infrastructure development, which also helps in building the logistics sector.

They should leave the rest to the industry to develop on its own. One long-pending reform is, like in the roads and air sector, the role of the government can be limited to providing the basic infrastructure (like rails and the operating regulatory mechanism), but allow private players to own and operate the rolling stock, it will change things significantly.

What are the transformations yet to be witnessed?

It’s difficult to do crystal-ball gazing in any sector, but the impact of eMobility,

Autonomous driving, etc., will have a deep impact in the logistics space, like the usage of drones for making last-mile supplies. All of these will demand regulatory changes as well, and the government seems to be proactively working towards this, e.g. the new drone policy, which has been announced.

All I can say is that we have not even moved into second gear in terms of the kind of changes that we are likely to see over the next 5 years. While we need to fasten our seatbelts, let’s also remember that it’s not necessary that the leading players of today, will also be the leading players in five years’ time.

Get ready for major disruption in supply chains and the logistics sector!

Anish Tripathi is a Mechanical Engineer (from Hyderabad) by qualification. He has over 28 years of work experience, and has worked with diverse companies like Grant Thornton, KPMG, Lakshmikumaran & Sridharan, and Amarchand Mangaldas.

He has led organizational functions like business strategy, BPR, Knowledge Management, business development, IT strategy, thought leadership, branding, sales, and marketing. He has done a Young Leaders management course at ISB Hyderabad, and has undergone training in Japan with Nissan Motors.

EVENT RECAP

DELIVERING VALUE:

The Next Chapter of Manufacturing 4.0 The 8th edition of Manufacturing Supply Chain Summit 2019 was all about prepping up for the next manufacturing wave where new rules of leadership will prevail. Sensing the pulse of the manufacturing fraternity while gathering ideas of the future technologies, trends and user expectations, the event offered a peek into what’s in store for supply chain professionals…

“Success today depends upon a deft marriage of new business models and game-changing technologies,” was the essence of the two-day power packed 8th edition of Manufacturing Supply Chain Summit, which was hosted by Kamikaze B2B Media. The day kickstarted with an intriguing panel discussion on ‘Industry 4.0 - Agility, A New Paradigm of Performance At The Heart Of New Consumers’ Expectations’ where the industry stalwarts dealt on the need for Industry 4.0; Blockchain for Manufacturing and offered nuances into managing upward growth by successfully demonstrating brand new data-drive revenue streams. One of the underlying discussions during the panel revolved around new age supply chain design concepts transforming the future of manufacturing supply chains.

During the panel discussion, Vaibhav Kulkarni, Works Head, Marico Ltd., stressed, “It’s the era of mass decentralization and enhanced personalization unlike the yesteryear’s mass production concept. With the consumers’ appetite to receive products faster going higher and higher, we have to embrace new age technology without any delay. Connectedness and data tracking will be the buzzwords in times as we move ahead.”

On his side, Navneet Agnihotri, HOD – Quality Assurance, Orient Electric Ltd., added, “While serving to our customers’ demands in the shortest possible time, we also need to be error-free. In that sense, data is surely going to be the key.”

Anjan Kundu, Head – Supply Chain Transformation, Hindustan Coca-Cola www.supplychaintribe.com

Beverages Pvt. Ltd., harped on the importance of human capital in gearing up for the tech-led growth. With a view to develop agile, flexible and sustainable supply chain, we need to prepare our talented workforce to deploy new age technologies which not only changed the way we work but actually become the norm for the people who are yet to enter this most exciting supply chain territory. The industry need to work hand in hand with the academia to make this happen and I am very happy to inform you that Hindustan CocaCola has been deeply engaged with the top-notch institutes of India to train the GenX and deliver the desired results.

The second day was dedicated to topics on procurement, inventory management, supplier relationship management and ending perfectly with building a world-class supply chain to enable a constant stream of ‘play’ to customers and consumers.

The conference was successful in propagating the crucial role of technology in designing smart supply chains to connect with the end user.

The participants were able to gain applicable insights into successful employee engagement for a new generation. The culture of the Summit was described as ‘welcoming, engaged and passionate’.

THE AWARDS NIGHT Day one of the conference was followed by the much-awaited Awards ceremony.

The pride of winning was evident on the faces of every winner. India’s first and only comedian-illusionist Karan Chauhan added to bonhomie by performing a unique combination of comedy, illusion and some very cool magic.

Just as we end, we receive a World Bank Report stating, “3 ways developing countries can prepare for the 4th Industrial Revolution are Competitiveness, Capabilities and Connectedness.” Rightly so, the conference was bang on in projecting these 3 aspects as the fundamentals of supply chain success in the new era.

33

RECAP

Trending GL BALLY World’s largest businesses cut 633mn metric tons of CO2 from their supply chains

Amazon aims to cut carbon footprint of shipments in half by 2030 through Shipment Zero initiative Amazon has recently announced plans to make half of all its shipments carbon neutral by 2030. Named ‘Shipment Zero’, the project aims to publish its carbon footprint for the first time later this year. To achieve this goal, Amazon plans to use more aircraft biofuels, electric vehicles, renewable energy and reusable packaging. “We believe that lower costs include lowering the costs to the environment we all live and work in every day,” the company said in a statement. In the longterm, its vision is to make all Amazon shipments net zero carbon.

Amazon already has several sustainability programmes underway including Frustration Free Packaging and Ship in Own Container. Additionally, Amazon has also made investments in the circular economy with the Closed Loop Fund.

The online retailer said that, in operations alone, it “employs more than 200 scientists, engineers and product designers who are dedicated to developing new ways to leverage Amazon’s scale for the “good of the customers and the planet.” “It won’t be easy to achieve this goal, but it’s worth being focused and stubborn on this vision and we’re committed to seeing it through,” added Dave Clark, Amazon’s senior vice president of worldwide operations.

34 CELERITY March - April 2019

A new report by CDP has revealed a step-change in corporate awareness and action on environmental impacts within the supply chain in the last decade. Suppliers reported emissions reductions of 633mn metric tons of carbon dioxide – greater than the emissions of South Korea in 2017 – leading to collective cost savings of US$19.3bn.

For many, sustainability is now a major factor in their purchasing decisions with nearly three quarters (73%) of a subset of 27 major purchasers answering a CDP survey revealing that they are either currently deselecting, or considering deselecting, existing suppliers based on their environmental performance. 63% are either currently using, or considering using, data from CDP disclosures to influence whether they contract with suppliers or not.

“If suppliers continue to cascade good practices further down the supply chain, this has the potential to play a huge role in the rapid transition to a sustainable, lowcarbon economy. However, with only 57% of suppliers reporting emissions reductions activities, and less than half (47%) with emissions reduction targets in place, the transformation in their customers’ expectations means that those suppliers failing to act sustainably may increasingly see it impact their bottom line,” shared Sonya Bhonsle, Global Head of Supply Chain at CDP. For Andrew McMullen, The LEGO Group, “Sustainability is not an added extra. It has become a key strand of our approach for supplier relationship management. In particular, we know that disclosure through CDP is a great lens for looking at energy and resource efficiency. If we can help suppliers to improve this then there is a huge amount of shared value to be gained, where we can both benefit from reduced environmental impact and cost savings.”

Tetra Pak now requires third party verification that its paperboard suppliers do not use wood from any form of deforestation that breaks the natural forestry cycle. A company cannot supply Tetra Pak if it fails to meet these requirements.

IMPLEMENTING TECHNOLOGIES TODAY TO ACHIEVE POSSIBILITIES OF TOMORROW Automation is shaping the way we see the world and FSC is at the forefront of making this change happen. Our warehouses are highly automated, fulďŹ lling demand across sectors, for the whole country.

Inbound and Outbound Automation

Internet of Things (IoT)

Movable Racking System

Put-to-light and Cross Belt Sortation System

Transport Management System (TMS)

Vehicle Tracking System (VTS)

Voice Picking Technology

Warehouse Management System (WMS)

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