Strategist | March 2019 | Logistics Management

‘We aim to provide participants consulting projects and challenges that will equip them to tackle future assignments confidently and competitively. We also aim to facilitate growth of collective knowledge of the entire student community interested in the Consulting and Strategy domain. This magazine says it all. In this issue of the the Strategist, we have emphasized on Logistics Management, which plays a major role in the growth and future of the country. We have tried to cover the topic in an exhaustive manner. We hope you enjoy reading this issue of the Strategist as much as we enjoyed creating it.’

-Team ConQuest

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CONTENT O4

From the Editor’s Desk

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Technology - Orchestrating the Revolution of the Logistics Sphere

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Transformation at Warp Speed

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Third- Party Logistics

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Corporate Interview - Vikas Pawar

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FROM THE EDITOR’S DESK In this edition of Strategist, we take a look at the rise of logistics industry in India, major players and trends that have played a vital role in this growth and the future of the industry in a country which is riding high on economic boom.

At present, the Indian logistics sector which is estimated to be of approximately 160 billion dollars is on a strong growth tide and is expected to show a further growth of approximately 10% for next few years. Lately the government has played a vital role in the growth of logistics sector by providing infrastructure status to the logistics sector. Moreover implementation of GST in India though faced certain hiccups initially, it has caused the consolidation in warehousing domain, greater demand for third party logistics and development of multimodal logistics parks. In addition to this, certain government programs like UDAN scheme and Bharatmala Pariyojna is expected to provide further boost to logistics system in the country.

Along with abovementioned government initiatives, there are certain startups which have started providing excellent solutions in this fragmented and unorganized sector. It all started with rise of e-commerce giants like Amazon, Flipkart etc. which provided in-house logistics services and that provided a pathway to other budding entrepreneurs to exploit this industry. The investors have also noted the exponential growth in this sector and they have funded numerous small-scale startups over the years. The advent and upsurge of third party logistics management also ensured that the companies do not need to One of the most notable reasons for such an exceptional growth in logistics industry is due to selection of right technology for applications in this industry which has helped in creating strategic opportunities for organizations to develop competitive advantage. In logistics sector, technologies has substantially increased speed of identification, data gathering, processing, analysis and transmission, with high level of accuracy and reliability. Certain trends like emergence of elastic logistics, increase in supply chain visibility by use of modern AI solutions for real time tracking and Omni channel supply will ensure more efficiency and reduced costs for companies going into the future. With growing quintessence of information technology, it is important to focus on soft infrastructure like education and policy framework and not just on the hard infrastructure. There is also an increasing trend of implementing green logistics by Indian companies which will ensure sustainable development goals. With the kind of growth that is visible in last few years, it is safe to expect that this sector will be one of the largest job creator in the country in next five years.

TEAM CONQUEST

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Technology – Orchestrating the Revolution of the Logistics Sphere

Abhiram Padmanabhan MBA (International Business), 2018-20 Indian Institute of Foreign Trade

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The technology revolution is transforming the world of business at an expeditious rate and the realm of logistics has tapped into the perks of technology. From autonomous transport vehicles to unmanned robots in warehouses to package deliveries by drones, technology is redefining the future of supply chain and logistics. With the global logistics industry accounting for close to 10 percent of the world’s total GDP, the impact of technology in improving efficiency and curbing costs will be profound.

Technological innovations will make the supply chain of the future, leaner, quicker and most importantly, autonomous. This groundbreaking transformation will be led by a few pioneering technologies that the industry players will get acclimatized to in the forthcoming years.

Telematics and Fleet Management Systems GPS (Global Positioning System) powered fleet management systems have empowered logistics firms and fleet owners with a gamut of controllable features. In addition to location tracking, the fleet managers can configure ‘geo-fences’ to trigger alerts when trucks cross preset location markers.

Route optimization based on real-time data, better vehicle utilization and monitoring the driver actions are other features offered by telematics.

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Transportation Management System (TMS) The incorporation of transport management systems (TMS) in the logistics arena has been on the rise. A TMS facilitates route optimization, freight auditing, shipment tracking, handling returns and processing loss and damage claims. With the aid of reports, dashboards, analytics and representative charts, TMS results in efficiency enhancements and cost reduction. Cloud-based platforms have fueled the demand for transport management systems owing to their ability to eliminate downtime bottlenecks and improving cyber security concomitantly.

Internet of Things (IoT) and Radio Frequency Identification (RFID) With the Internet and Wi-Fi encompassing a wide range of devices, IoT is opening up various avenues in the field of logistics and supply chain management. Fleet trucks, trains and cargo are equipped with sensors for monitoring and tracking. IoT can predict potential dangers and thereby, aid in stepping up the security and safety standards. In the factory and warehouse environments, IoT can help in monitoring the performance of machines, keeping a tab on the status of the inventory and ambient conditions needed to keep the cargo intact.

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Blockchain Technology in Logistics According to a recent survey of over 400 senior executives in the logistics sector conducted by Forbes Insights, 65% believe that technology is revamping the entire supply chain sector. Blockchain is one of the major drivers of this overhaul. In an ecosystem comprising of a plethora of players like 3PLs, shipping agents, freight brokers, customs, insurance agencies and customers, blockchain can envisage trust through standardization of data. Blockchain can aid in automating payments through smart contracts.

For instance, when the shipping carrier delivers a good to the warehouse, both parties can validate the delivery and the payment can be initiated via the smart contract mechanism.

The trade finance industry has been plagued by logistical bottlenecks owing to outdated and inefficient manual processes. Documents such as letters of credit (LC) and bills of lading can be digitized and secured with the aid of blockchain technology.

Upon the delivery of goods, payment dues to can be settled in tokenized form governed by smart contracts. The BiTA (Blockchain in Transport Alliance) is an industry consortium that is exploring the applications of blockchain in the transportation and logistics sector.

Autonomous Vehicles With the digitization of the logistics industry gaining momentum, the autonomous truck is well on its course to create an impending change.

As reported by McKinsey & Company, full autonomy would bring down operating costs by 45% in the United States, resulting in savings in the range of (85 to 125) billion dollars. With the ability of autonomous trucks to replenish inventory at a faster rate, per-unit costs of warehousing would drop and warehouse operations will be simplified. To adapt to these changes, warehouses would have to put in place technologies such as automatic doors, entrances and docks powered by sensors to stay in tandem with the functioning of autonomous trucks.

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Researchers in McKinsey’s Center for Future Mobility have predicted that the transition to full autonomy will take place in four waves with the operators’ total cost of ownership (TCO) reducing in each wave. US based Embark Trucks, Uber and Tesla are frontrunners in this sector that has the potential to transform logistics management.

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Robotics and Drones Automated forklifts and robots are being employed in warehouses in order to improve efficiency and lower costs of operation. Amazon has been leading the race in this regard with the acquisition of Kiva Systems (which is now under the umbrella of Amazon Robotics). This has empowered Amazon to process ‘single-click’ orders within a span of 15 minutes which normally takes around 60 minutes when carried out manually.

The idea of using Unmanned Aerial Vehicles (UAVs) for delivery has gained traction in the recent times. Drones can provide a major relief to logistics firms by ensuring last mile connectivity in traffic-laden cities and rural areas. Despite the regulatory constraints and cost factors, firms like Amazon (Amazon Prime Air) and Google (Project Wing) are exploring the viability of drones being the delivery agents of the future.

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How does the future pan out for the logistics industry?

As per a report published by Transparency Market Research, by 2023, the global logistics market is expected to touch 15.5 trillion US dollars. The logistics sector has immensely benefited with the technology disruption.

To bolster efficiency and improve performance, it is pivotal to adapt to the changing trends and keep abreast with the latest innovations. With technology opening up new avenues in transportation and logistics, firms need to invest in these technologies and seize the first-mover advantage during the transformation of the supply chain.

Abhiram Padmanabhan

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Transformation at Warp Speed

Ajith Kumar B and Candace Majella Jacob NMIMS, Mumbai.

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“The line between disorder and order lies in logistics.”

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Sun Tsu, The Art Of War

Introduction The French word “Loger” meaning “to lodge” aptly describes the activity of organizing the movement, equipment, and accommodation of troops in an army. An impeccable and efficient logistics plan meant the difference between victory and failure. Modern-day logistics stands for packing, storing and transporting goods. The modus operandi has changed but the game remains the same. A field which has come into the limelight in the past couple years since the grant of “infrastructural status”, logistics has emerged as the frontrunner in success factors that differentiate companies.

That coupled with the digital revolution happening in the Indian ecosystem has resulted in an exponential growth of the sector, especially positively impacting up and coming startups which are agile enough to respond to the changes effectively and efficiently. India’s growth can be put into perspective by looking at its leap ahead in the Global Logistics Performance Index, from 54 in 2014 to 35 in 2016. Logistics has evolved with big data and is now considered to be a focus area for improvement rather than a peripheral entity of supply chain management.

Evolution of Logistics Traditional logistics players were primarily businesses that owned few trucks which were run primarily to serve their needs. It depended on FTL to gain operational efficiency which led to longer lead times and higher inventory carrying costs. Economies of scales was a far-fetched reality.

Then came leasing of the fleet to reduce cost and gain flexibility. To take advantage of economies of scale, 3PL came into the picture – these service providers were either responsible for the complete logistics for a company or a part of it. But they handled multiple companies to sustain profitability.

The Advent of Startups With the advent of IT, the higher rate of mobile penetration and low barriers to entry, startups started coming into the picture. It was the beginning of the 4PL era. Instead of being just a service provider, they became amalgamators of demand. They turned into providers of end to end supply chain solutions by leveraging Big Data and Internet of Things.

The price wasn’t the only factor for consideration at this point, it was the sum total of all values derived from the plethora of services offered.

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“Infrastructure status� was a bang for the buck invested by Venture capitalists and Angel Investors. It further propelled a colossal inflow of funds and talent into the logistics arm which is a primary factor for India being the second best emerging logistics market.

Figure: Top 10 emerging logistics market, Agility Emerging Markets Logistics Index 2018

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Reports have also put the logistics sector in the driver seat of hot startups in 2018.

Figure: Startup Outlook Report 2018 by InnoVen Capital India Moreover, it is important to understand the prevailing scenario worldwide and in India to predict how the future market will look like for future India.

Uberification The uber-cool term used in the logistics market at the moment is “Uberification�. Majority of startups are focusing on the ability to match demand and supply with the help of big data – the underlying business model of ride-hailing startup Uber. A repository of shippers and freight forwarders are created by these startups and they match the same with the requirements posted by its customers (delivery time, pickup location, cold storage requirements, volume/tonnage capacity, etc.) to provide them with the best-suited delivery options.

The long-standing issue for LSPs was their inability to garner demand for their return journey which led to empty backhaul and profit erosion.

Startups played a big role in overcoming this obstacle. Companies like Porter, Shadowfax, Blackbuck, LOBB, Trukky work on similar business models that are built on uberification.

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The Human Touch When talking about logistics we shouldn’t restrict ourselves to only machines. Truck drivers are the most valuable resource for any logistics company. Their daily working environment is pathetic and their work-life balance has been tossed out of the window which has led to a depleting labor pool. Rivigo is a startup that has been making rounds in the industry for providing a humane environment for its workforce and at the same time using Relay model to radically bring down its transit time.

Rivigo was launched in 2015 and has quickly grown into an organization with 3000+ employees and 3000+ commercial vehicles in a span of just three years. The reason was their unique operating model based on Relay trucking – a network of pit stops, located at a distance of 250 Kms from one another, where drivers exchange trucks. The driver is supposed to rest for a mandated period of time before he can drive back home in another truck as informed by the technical team. This way drivers can work for less number of hours and distance instead of undergoing excruciating long distance journey that keeps them away from home all the time. The result: Rivigo trucks are able to make seven trips a month whereas traditional LSPs can only make 3 trips a month. Along with this Rivigo introduced modern sensors to safeguard products as well as its fuel. But the humane environment is its USP and is one of the prime reasons for its rapid growth rate.

Storage and Packing Storage and Packaging costs are significant and are areas of concern for cost optimization. Startups have turned these challenges into a business opportunity. One such startup is LEAP India.

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LEAP India’s business is of returnable packaging and shared usage/ pooling of resources such as metal wire mesh, wooden pallets, boxes, etc. catering to a wide set of markets that uses these products to transfer and store goods. Their products can be customized to suit the specific needs of the customer or standardized parts can be shared by numerous customers. To make this successful, a huge effort has been put into the backhaul of the products as well.

Stepping into the Future It is now vital to assess the next generation technologies that hold the power to alter the way logistics has been carried out so far.

Unmanned Delivery In the US, Kroger in partnership with Nuro has launched delivery of groceries using unmanned vehicles in Arizona at just $5.95 with a capacity to carry 20 bags across a wide variety. IOT is made of use for the customer to pick up his/her order. Startups such as Flux Auto, Swaayatt Robots and SeDriCa 1.0 are few out of many that are working on driverless technology suited for Indian conditions.

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Upping the game is delivery using drones for faster and smoother lastmile deliveries. Recently Drone Regulations 1.0 was implemented by the Indian government. Amazon has been using drones for delivery in the UK. Zomato recently acquired TechEagle Innovations to deliver its orders via drones. The current laws prohibit operating drones out of the line of sight.

But future amendments will make commercial delivery possible.

Mobile Warehouse Another crucial aspect of logistics is warehousing which is associated with huge fixed cost and inflexibility. But companies are trying to overcome this via mobile warehouses that can make the supply chain agile and bring it closer to the end customers. This also solves another crucial problem of Reverse flow of goods.

Intermodal Logistics Startups have focused on the mode of movement in silos. Intermodal breaks that but not many startups have ventured into this space in India.

DrayNow in the USA has turned its attention towards intermodal freight forwarding and has the first mover advantage.

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3D Printing “3D printing is no longer in a prototype stage. It is a logistics solution that will reshape supply chains.�

3D Printing is potentially the biggest single disruptive phenomenon to impact global industry short-circuiting one of the most difficult parts of logistics: transportation. The idea is to 3D print a required item onsite and eliminate or strongly reduce the transportation requirement.

The possibilities include mass customization, frequent retooling of manufacturing plants and a major focus on storage and movement of raw materials for the 3D printer.

Conclusion The future of logistics will be decided by software that produces innovation, communication and transparency. Accordingly, India has given importance to logistics at the right time. With upcoming projects providing efficient transportation infrastructure and government policies supporting innovation, an excellent opportunity to reduce costs, get rid of bottlenecks, eliminate wastage and provide delightful customer service has been presented. It is high time for startups to embrace digital revolution and bring in unparalleled efficiency to the sector that has been wrongly long considered as just a facilitator and not a cardinal domain.

Ajith Kumar B Candace Majella Jacob

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Third-party logistics

Varun Kumar Institute of Management and Entrepreneurship Development,Pune

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Logistics is the process of coordinating how resources (people, materials, inventory, and equipment) are acquired, stored and transported to their final destination. In simple words, it is the overall process of the flow of resources from the point of origin and the point of consumption in order to meet the requirements of customers or corporations. If the expected requirement is not meet, it leads to the dissatisfaction to the customers and ultimately leads to the loss of the company.

Logistics and supply chain is sometimes considered the same but there is a difference between the two. Logistics is the process of integrating the movement of goods to the organization and finally to the customers at their satisfaction. While Supply chain is the management and coordination of the logistics activities to gain competitive advantage.

Based on the number of elements outsourced, Logistics can be divided into 4 categories: 1PL: First Party Logistics First party logistics involves only two parties in the transaction. The goods from the supplier shipped to the manufacturer or from a manufacturer to the customer. The transportation of goods from wholesaler to the retailer is also the first Party logistics 2PL: Second Party Logistics Second Party Logistics involves two parties in the transportation process.

The mode of transportation used for the delivery of goods can be rail, road, sea and/or air. When the goods are transported from the manufacturing location to the seaport and from there, it is shipped through the ship is an example of the Second party Logistics.

3PL: Third Party Logistics Third Party Logistics primarily concern for the transportation of goods from a supplier/consigner to a buyer/consignee, it also includes additional services involved in the supply chain like warehousing, terminal operations, customs brokerage, supply chain management, etc. For example, let ABC is a 3PL service provider specializing in domestic and offshore warehousing, international freight forwarding and customs brokerage, but also provides e-fulfillment, specialized export services, and other supply chain management services for your business.

4PL: Fourth Party Logistics Fourth Party Logistics aims to manage people, process and technology.

It is usually adopted by the organization which has a robust supply chain system and to gain a different perspective, knowledge, experience, and technology to the existing in-house function.

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The benefits of 4Pl are: 1.

Increase access to potential suppliers

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Technological Support

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Market transparency increases for goods and services

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Order placement is made standard and automatic

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Reduction in procurement costs and order cycle times

Third Party Logistics is the external company which performs all the logistics functions of the organizations. It includes Transportation, warehousing, Distribution, financial services etc.

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As per the Sahay and Mohan, 2003 study, outsourcing of logistics activities is becoming popular amongst Indian organization and also there has been growth in the Third-party logistics providers over the last couple of years.

The major reasons cited for usage of 3PL services include – cost reduction (27 percent), strategic reasons (26 percent), process effectiveness (24 percent), and lack of internal capability (11 percent).

As per the Mahindra Logistics Ltd (MLL) the domestic third-party logistics space is expected to grow at a 19-20 percent CAGR to reach Rs 58,000 crore by 2019-20. Recent research carried out on supply chain management practices in India highlights that the opening of Indian economy and globalization of businesses has been a key factor for the Indian industry to align supply chain strategy with business strategy, streamline processes for supply chain integration and form partnerships for minimizing inventories.

Indian organizations are increasingly deploying supply chain strategies for logistics improvements – to increase sales revenue, enhance profits, reduce order to delivery cycle time and minimize inventories. (Sahay and Mohan, 2003)

How 3PL works Let us understand the working of 3PL with the help of an e-commerce company.

Suppose you order a Mobile Phone on Flipkart, the order received by the Flipkart and it directs the 3PL company to pick the delivery and deliver it safely to the customer. During this whole process, 3PL is responsible for the store, maintenance, and time-bound delivery of the product. The 3PL service provider may also be responsible for the packaging of the product.

Figure: 3PL Flow Chart The order placed by the customer on the e-commerce platform is further communicated with the 3PL service provider. The 3PL service provider picks up the product from the store and takes it to the warehouse for further transportation or for packaging. Further, the same service provider delivers the product to the customer safely and within the stipulated time.

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Benefits of 3PL Followings are the benefits of the third Party Logistics1.

Storage, maintenance, and delivery

3PL service provider helps the e-commerce company to reduce inventory by providing the storage facility. It takes the risk of maintenance and provides them with hassle-free delivery of the product to the customer.

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Risk mitigation

As per the agreement between the Service renderer and 3PL service company, the responsibility to deliver the product safely and on time lies with the 3Pl service company and hence in case of loss due to any damages or delay in transportation, it shifted the 3Pl service company solely.

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Offline retailers moving to online channels

With the increasing internet usage and more and more people are preferring online platform to purchase the product and hence to gain business many offline retailers are selling their products online. The 3PL service Company helps and takes responsibility for the proper delivery of the product to the customer on time.

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Multi-mode transportation model

To gain a competitive advantage in the market, the company promises faster delivery (one-day delivery) and hence sometimes more than one mode of transport is used. Also to keep the promise sometimes airways, roadways and various other modes of transportation are used to deliver the product on time.

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Creating business opportunities

With the increase in 3PL Service Company, many new businesses are emerging. Earlier, even after having the business idea people with low budget can’t start their business due to huge cost involved in setting up own logistics process, but now 3Pl service Company helps the people in making a good business.

Conclusion 3PL is a widely used logistics services nowadays due to the benefits it offers. Any small business can take the help of 3PL Service Company to grow their business. It has made easier for the small business to make their product globally available without having fear of loss as the whole risk of being damaged and loss is solely born by the Third party Logistics service company.

Varun Kumar

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CORPORATE INTERVIEW Mr Vikas Pawar, Head – Corporate strategy and analytics at GATI-KWE. He is an alumnus of the University of Pittsburgh - Joseph M. Katz Graduate School of Business. Previously he has worked as a consultant at Deloitte and is presently working with GATI.

Q: Can you please tell us have transportation cost, something about your warehousing cost and then professional journey so far. there is inventory carrying cost and wastages in the I started my professional supply chain. So, if you look journey after my engineering at our transportation cost viswhich I did from the University à-vis the west or even China, of Pune. Although I was a we have some of the cheapest software engineer, I went transportation cost, even the into the field of management warehousing, the rent per sq. consulting. I worked for foot is cheapest worldwide.

Deloitte Haskins & Sells for a If you see where we lose out, couple of years. From there, that to pre-GST, is because of I pursued further education. inventory carrying cost and After my MBA, I worked as an wastages. It accounts for about intern at a specialized logistics 45% out of the 13% logistics consulting firm. Post that I was cost. Now inventory costs moved into industry research are high because companies and there I was managing a look for tax efficiency rather team of five analysts. In 2010 than supply chain efficiency.

I decided that I should move The companies earlier use to back to India and use my believe that they needed to skillsets of what I have learnt have a warehouse in every in the logistics field in the state they operate. In supply US. Logistics was a booming chain theory, if you increase industry then, I joined GATI warehouse the inventory in their SCM business. I got to squares. The wastage is of work on good projects with course when you’re talking key client in electronics and about perishables, almost hospitality industry. From 33% of the perishables which there, I moved to their training are there in India be it food or unit, and currently, I head their vegetables, be it grain, be it any strategy. kind of farm items, because of the lack infrastructure you are Q: The Logistic cost in India is losing out on a lot of material almost 13% of the total cost which could go to market. So, as compared to 9 % in the US if these infrastructures are in (Maitra, 2017). What according place, then the wastages will to you are the key issues faced be low. So that is the reason by the logistics sector in India, it’s not that the transportation apart from the infrastructure? and warehousing costs are high it is because inventory If we breakdown the carrying cost and wastage logistics cost in India, you has a high percentage of that

market of course.

Q: Looking at the current trends, what do you feel are the skills that students ought to be having to become a successful manager?

I think in today’s business world the most significant trait for a manager like you and you is dealing with ambiguity.

So, you must be ready in such an environment where there are legacy businesses, and there are start-ups which are existing. It is very critical that you have the right context.

You have the big picture in your mind. You connect these dots of what it means to your business. You know that is something which is key and having business acumen. That is something which is, it’s just not that like, you know every day you read the newspaper, and you are abreast of the industry, but the crucial part is connecting the dots. Okay, so I would say dealing with ambiguity, keeping an open mind, having good business acumen. These are all traits of a good industry person. The specific nature of the industry, the idiosyncrasies of the industry that is for you to learn within the organization. But if you have these traits, you can easily learn. So, I believe that’s the advice I can give to the students here.

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