Vol. 01 | Issue 11 | MARCH 2011
VIEWPOINT CEO – Publishing Sandeep Khosla
HARMONISING COMPETITIVE GOALS
Executive Editor Archana Tiwari-Nayudu Features Editor Prerna Sharma Senior Features Writer Sumedha Mahorey Features Writer Sandeep Pai, Sudhir Muddana, Purna Parmar, KTP Radhika Jinoy (Delhi), Anwesh Koley (Delhi) Copy Desk Swati Sharma, Kimberley D’Mello Product Desk Michael Anthony
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hat’s a tough one! Well, it has to be… to balance environment and economy was never meant to be easy. Or is it not really? Do we tend to miss the bigger point of profit in our zest to manage Y-O-Y profitability? Perhaps yes. Perhaps, we are not yet evolved, as an industry, to really understand the strategic importance of greening our supply chain and limit our actions and thought to only ‘compulsion’ level of greening. It ultimately leads to very lukewarm action and implications. This incidentally brings us back to a curious question: Can these two competitive goals, of economic and environmental viability, be harmonised to create efficient and environment-friendly logistics systems? We all understand and agree that painting logistics ‘green’ is not easy. However, as one of the experts aptly puts it, there are basic inconsistencies between ‘greenness’ and ‘logistics’. The cost-saving strategies followed by logistics operators are often at variance with the environment, as they usually externalise the environmental costs. Furthermore, logistics activities do not usually pay the full costs of using infrastructure. As a result, logistics operators use the most polluting, least energy-efficient and most infrastructure-intensive transportation modes to increase the speed of distribution. And when you talk to the logistics and supply chain executives, the question has financial as well as market implications. For shippers and other buyers of transportation and logistics services, the benefits or penalties of a green supply chain may be indirect. When charts of airborne emissions show vehicle exhaust accounting for the
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majority of one type of pollutant or another, the focus quickly narrows down to trucks. Aircraft, nearly all of which carry some form of freight, release their emissions directly into the atmosphere. Bulk modes like maritime and rail, on the other hand, get a little less attention and blame. But the passing of the blame and the buck must stop somewhere. There is a need to acknowledge and accept that this is not a carrier problem or a concern for logistics providers alone. But it is an industry problem that requires the attention and efforts of shippers, consignees, logistics service companies, carriers, professional and trade associations and other members of the community, who can mobilise to develop and present solutions. There is also a need for integrating transport into a sustainable development process. One of the big challenges facing us at present is creating a long-term sustainable society with the least possible negative environmental impact. In response to this pressure, a new approach to logistics needs to emerge, which should go beyond the standard logistical imperatives for efficient, effective and fast handling & movement of goods, and takes into account measures for protecting the environment. Here’s dedicating a whole edition to GREEN, the colour of environment compatibility and incidentally the colour of cash too! It is not such a difficult choice… is it?
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MARCH 2011 • SMART LOGISTICS • 5
VOL. 01, NO. 11
INSIGHTS & OUTLOOK: GREEN LOGISTICS Creating Synergy Between Economy And Environment Continuous pressure from stakeholders and regulators is driving companies to adopt a more environment-friendly approach. Although implementing green logistics is not easy, companies that have embraced advanced logistics modelling and product lifecycle management have developed a sustainable logistics for eco-efﬁcient and eco-friendly transport and supply chain improvements.
Green Logistics Does It Make Sense To Go Green? Green Supply Chain Collaborate Or Waste, The Choice Is Yours Cost-effective Ways To Go Green Enabling Eco-friendly Growth Pastures Eco-friendly Fleet Leaving A Green Trail Air Cargo Taking On The Zero-carbon Challenge One ‘Q’, Many Views Standing Up To The Green Challenge
VIEW FROM THE TOP ‘Speed And Efﬁciency Have Become The Mantra For Moving Forward’ Howard James-Scott, Supply Chain Expert & Entrepreneur
26 30 36 40 44 48 50
TAX & LEGALITIES
Customs Compliance Attaining Seamless Movement Of Goods
Fleet Management Service Provider Smart Moves To Drive Proﬁts
SUPPLY CHAIN MANAGEMENT
Lean Principles 3 Pillars Of Supply Chain Excellence
WAREHOUSING & DC Distribution Centre Management 11 Key Questions To Ask When Adding A Distribution Centre
ALSO IN THIS ISSUE VIEWPOINT NEWS, VIEWS & ANALYSIS Latest Happenings In The World Of Manufacturing PRICE TRENDS
NEWS ANALYSIS Port Regulation Major Ports Minor Powers
PLANS & POLICIES Rail Budget Bytes TECH TRACK PRODUCT & ADVERTISERS’ INDEX PRODUCT & ADVERTISERS’ INQUIRY FORM
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NORWAY’S GTB INVEST ACQUIRES TWO 13,100-TEU SHIPS UPS EXPRESS FREIGHT SERVICE EXPANDS INTO ISRAEL AND SLOVAKIA UPS has announced the expansion of its UPS Express Freight service into Israel and Slovakia to serve expanding hubs for high-tech, industrial and automotive companies. The UPS premium air freight service offers one- to three-business day door-to-door service, including customs clearance and an on-time performance guarantee. “Israel and Slovakia are increasingly important players in the global trade arena and UPS is committed to expanding its air freight services in these areas to meet the evolving logistical needs of its customers,” said Scott Aubuchon, Director – International Air Freight Marketing, UPS. He continued, “Decades of experience in high-tech, industrial and automotive industries combined with expertise in global trade and international air freight make UPS well-positioned to address the growing import and export needs in these countries.” UPS Express Freight will import and export everything, from airplane and automobile parts to jewellery and precious gems that are manufactured in the country.
TRANS-PACIFIC CARRIERS SEE TIGHT CAPACITY AHEAD Vessel utilisation rates in January 2011 in the eastbound trans-Pacific averaged 88 per cent to the West Coast and 95 per cent to the East Coast. Trade volumes for the rest of 2011 will show a strong beginning in late spring, according to a carrier discussion group. The Transpacific Stabilization Agreement (TSA) predicts that tight vessel space and equipment shortages could develop later this year when the eastbound Pacific enters the traditional peak shipping season. The carrier discussion group projects a volume increase of 7-8 per cent in the eastbound Pacific in 2011. Vessel capacity in the trade lane will increase 8.8 per cent this year, as per TSA.
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JAPAN’S ALL NIPPON AIRWAYS CARRIES 29 PER CENT MORE INTERNATIONAL CARGO GLOBAL AIR CARGO JUMPS 20.6 PER CENT IN 2010 Rebound in international trade has given air carriers a lift. Global air cargo traffic has surged by over a fifth in 2010 from the previous year, driven by a rebound in international trade, as per International Air Transportation Association (IATA). International freight shipments grew 6.7 per cent in December compared to last year, increasing to 20.6 per cent, reported IATA. Cargo demand is one per cent above pre-recession levels, but volume has slipped five per cent since the peak of the post-recession inventory re-stocking boom in early 2010. Cargo traffic outstripped the 8.9 per cent increase in freight capacity in 2010, boosting the industry’s load factor 5.2 percentage points to 53.8 per cent. Giovanni Bisignani, Director-General, IATA, said, “The world is moving again. After the biggest demand decline in the history of aviation, people have started to travel and do business again in 2010.” Freight traffic growth varied widely through 2010, from a high of 35.2 per cent in May to a low of 5.8 per cent in November.
M A N U F A C T U R I N G
KOLKATA PORT TO BUILD MULTIPURPOSE JETTY AT HALDIA Kolkata Port Trust has invited bids – requests for qualification (RFQs) – for construction of a 270-m-long riverine multipurpose jetty at the Haldia dock. The jetty will be located in the upstream of the present third oil jetty of the dock and complete with back-up facilities. This project will be based on the design, build, finance, operate and transfer (DBFOT) model and implemented through public private partnership. The cost of the project is estimated at `290 crore. The project pre-supposes that 70 per cent traffic of the 4.5 MTPA capacity jetty will be generated through transloading operation proposed to be undertaken by the port in two stages – at the Sandheads, the mouth of the Hooghly river, in the dry season; and at Kanika Sands, an island off the Orissa coast, during monsoon. Thus, large carriers with full load, unable to call at the Haldia dock due to navigability problem in river Hooghly, will unload cargo at transloading points from where smaller vessels carry cargo to the dock for the second round of discharge.
RYDER EXPANDS AND REFRESHES ITS RENTAL FLEET WITH 6,700 NEW TRUCKS, TRACTORS AND TRAILERS
FEDEX EXPRESS COMPLETES ACQUISITION OF AFL BUSINESSES FedEx Corp. recently announced that its FedEx Express business unit has completed the acquisition of the logistics, distribution and express businesses of AFL and its affiliate, Unifreight India (UFL). The acquisition further enhances FedEx Express’ international and India business offerings and continues a long-term commitment by FedEx to the growing Indian market. “FedEx continues to remain committed to facilitate the growth of Indian businesses globally. Our ongoing investments in the country are driven by our customers’ evolving demands, thus reinforcing the confidence of FedEx in the future of the Indian market. The acquisition of the AFL and UFL businesses has enhanced the leadership position of FedEx in the Indian express market and offers our customers access to a range of service options, including air express, domestic ground and value-added services such as warehousing, logistics solutions and 3PL,” said Hamdi A Osman, Sr VP – FedEx Express, Middle East, Indian Subcontinent and Africa. To this, Cyrus Guzder, Executive Advisor to FedEx Express, India, added, “With this transaction, FedEx Express will now provide all international services for AFL and UFL customers, who will have direct access to the FedEx international air and ground network in more than 220 countries and territories worldwide, thus enhancing their business flexibility and speed to market.” The acquisition will help build an extensive and competitive FedEx network across India, which includes 31 international flights in India, three gateways into and out of India and 12 clearance locations from Indian cities.
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NEWS, VIEWS & ANALYSIS L A T E S T
H A P P E N I N G S
MPSEZ ENTERS 1-MILLION-TEU CLUB Crossing milestones and setting benchmarks seems to have become a habit for Mundra Port and Special Economic Zone (MPSEZ). A little over two months after commencing operations at the world’s largest coal receiving terminal, MPSEZ has attained another new high — the handling of more than 1 million TEUs, for the first time, in the period April-January 2010-11. A combined total of 1,014,193 TEUs, to be exact, were handled by the Adani Mundra Container Terminal (AMCT) and the Mundra International Container Terminal (MICT), the two box terminals operating at Mundra Port, during the 10 months of the current fiscal. While MICT’s individual contribution was 564,339 TEUs, AMCT handled 449,854 TEUs in the period under review. In 2009-10, MPSEZ had registered a container throughput of 931,160 TEUs. MICT and AMCT had commenced operations in July 2003 and August 2007, respectively. MPSEZ is also close to another record. In all likelihood, it is expected to achieve an overall throughput of more than 50 million tonnes, again for the first time, in 2010-11, a significant increase over the 40.29 million tonnes achieved in 200910. MPSEZ is thus going from strength to strength. The coal terminal is projected to significantly boost cargo volumes and the Port’s emergence as the key vehicle export gateway on the West Coast should also add to overall throughput.
SHIPPING CORP TO UP RATES ON SHIPMENTS TO EUROPE REGION Shipping Corp of India has announced freight rates hike on cargo movement from the Indian subcontinent to the European and Mediterranean ports by $200 per twenty-foot equivalent units in March. The increase is for all bookings to North Europe, the UK, Mediterranean and Black Sea routes. The rates are being increased to meet the overall operations costs.
RAIL AMERICA POSTS $17.9 MILLION Q4 PROFIT
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MAERSK BAGS $2 BILLION ORDER FOR 18,000-TEU SHIPS ASIA CARRIERS LAUNCH SOUTH AMERICAN LOOP Four Asian carriers plan to launch all-water bi-weekly service from Asia to the East Coast of South America, adding capacity on the trade route they currently serve with a weekly service. ‘K’ Line, Hyundai Merchant Marine, NYK Line and Pacific International Line will start the new loop in March end. The launch of this service underlines the growth of Asian trade with South America as China and other countries in the Far East expand exports and buy an increasing share of South American exports. In addition, carriers have been expanding services between the US and South America. ‘K’ Line said that its service – AESA-2 – will enhance the current AESA-1 loop with a direct call at Vitoria in Brazil and a faster transit time to Rio de Janeiro. The four carriers will also expand the current service they operate on a slightly different port rotation with a call at Pusan, starting in mid March, which will provide a direct express service between South Korea and the East Coast of South America.
M A N U F A C T U R I N G
RAILWAYS FINALISES POLICY FOR INVESTMENT IN LAST MILE LINKS Following demands by several iron ore and coal mining firms, Indian Railways has finalised a policy that will allow them to invest in building last mile rail links. Firms seeking a provision on similar lines include Adani Group, Orissa Industrial Infrastructure Development Corporation and subsidiaries of Coal India. The policy is applicable for 20 km rail links only. Thus, the minimum cost of each project would be `100-140 crore (excluding land costs). Broadly, the policy states that companies will fund construction of rail link along with land acquisition costs. And, after construction, the ownership, operation and maintenance will remain with the Indian Railways. On the revenue side, the entire freight earnings will be accrued to the Railways. This policy is termed as the rail connectivity policy for coal and iron ore mines (R2CI policy). It has two models: capital cost model and special purpose vehicle (SPV) model for flexibility. Capital cost model is relevant for two players, while SPV model is applicable for a large number of players.
KARAIKAL PORT IN EXPANSION MODE Karaikal port, the private port sandwiched between the major ports of Chennai and Tuticorin, is in the expansion mode. Infrastructure and real estate player Marg is developing the port. The port, which is currently operating two berths for coal and general cargo such as cement and fertiliser will have five more berths ready by October. This expansion would be part of the second phase of its expansion – costing `1,569 crore – to create a capacity of 21 million tonne of cargo per annum. Dredging of the harbour basin, along with construction of berths, is in full swing at the port. While the port’s draft will be increased to 16.5m, the breakwater will be extended and the channel & turning circle will be widened to handle large vessels. The port will be capable of handling all types of cargo such as dry bulk, break bulk, liquid bulk and containerised cargo in independent zones. According to GRK Reddy, CMD, Marg, the nearby industrial towns would be able to cut short their transportation by at least 150 km if they use the Karaikal port instead of the ports in Chennai and Tuticorin. He added that the port could see increased volumes once Karaikal city is linked by rail to Nagore. The port is currently linked to Nagore, which is about 3 km away. He said, “Customers can overall save up to `700 per tonne by using the Karaikal port over the neighbouring ports. There will be an average saving of about `300 per tonne on transportation alone if one considers the (distance) differential of 150 km between Karaikal port and the other two ports.” Besides, port efficiencies such as lower holding time of just about a day compared with 4-5 days of typical holding time in other ports, and stock variation of less than the standard norm of 1 per cent can add to the cost savings of customers. This port can also serve nearby industrial belts such as Erode, Salem, Tiruppur and Trichy.
NEWS, VIEWS & ANALYSIS L A T E S T
H A P P E N I N G S
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DP WORLD OPENS INLAND CONTAINER TERMINAL IN PAKISTAN
GREEN NOD TO CHENNAI PORT-MADURAVAYOL EXPRESSWAY PROJECT
DP World has opened a new inland container terminal in Lahore, Pakistan’s second largest city. DP World Lahore, also known as Prem Nagar Dry Port, is the first public private partnership project sponsored by Pakistan’s Ministry of Railways. The terminal will be managed and operated by DP World in a joint venture with Premier Mercantile Services, one of Pakistan’s largest maritime terminal operators. DP World Lahore is equipped with a 25,000-square-foot container freight station and will also provide local haulage services beyond the gate to the customers’ doorstep. It serves the country’s largest hinterland market – the Lahore-Sahiwal region and is directly linked by rail to Qasim International Container Terminal (QICT), the gateway port managed and operated by DP World Karachi, located more than 600 miles away. Opening of the new inland terminal follows the recent opening of terminal 2 at port Qasim recently, which expanded QICT’s capacity from 900,000 20-foot equivalent container units to about 1.2 million TEUs.
With the Union Environment Ministry giving the green signal, the final hurdle for commissioning the `1,655-crore road project connecting Chennai port and Maduravayol has been cleared. GK Vasan, Union Minister for Shipping, said, “Now that all the hurdles have been cleared, I urge the State Government and the National Highways Authority of India (NHAI) to speed up the execution of this important project.” The project is slated to be India’s longest four-way elevated expressway from the Chennai port to Maduravoyal. It will begin near the War Memorial gate and run along the banks of the Cooum up to Koyambedu (14.5 km) and along NH-4 up to Maduravoyal. This 19-km project is important for the Chennai port to enable quick evacuation of containers. As part of its contribution to the project, Chennai Port Trust had recently handed over a cheque for `50 crore to the NHAI. The Shipping Ministry has also given its approval for Chennai Port Trust to incur up to `155 crore towards land acquisition and for rehabilitation and resettlement.
NMPT BEGINS WORK ON POL BERTH CONSTRUCTION
TUTICORIN PORT SEEKS FINANCIAL ASSISTANCE TO BUILD MORE BERTHS
New Mangalore Port Trust (NMPT) has begun construction of berth number 13, for handling petroleum, oil and lubricant (POL) products at the port. P Tamilvanan, Chairman, NMPT, said that the work for the project was allocated in December 2010, and it started off in February 2011. The completion period for the project is 20 months. The total project cost is estimated at `79 crore. This berth would handle about 7.68 million tonne of POL cargo per year. Also, this berth would help meet the requirements of POL users, including Mangalore Refinery and Petrochemicals (MRPL). The `230 crore berth 15 is currently under construction at the port, which will handle coal cargo. This will handle 5.4 million tonne cargo per year, and is expected to be completed by April. The Udupi Power Corporation, which has a thermal power plant at Padubidri, will handle about three million tonne of coal per year from this berth.
The Tuticorin Port Trust (TPT) has sought an assistance of `2,800 crore from Official Development Assistance (ODA) of Japan to develop the Outer Harbour project, which was proposed more than three years ago. The port trust has planned the project at a cost of `4,360 crore to create an additional capacity of nearly 43 million tonne. A Subbiah, Chairman, TPT, states that while half the investment is sought from the ODA through Japan International Cooperation Agency, the remaining will be generated through public private partnership. The project envisages construction of nine berths – three for multi cargo, three for containers, two for coal and one for handling vessels for the port trust. The container berth will have a quay length of 1.5 km. The Ministry of Environment and Forest has put the outer harbour project on a fast track. After clearance, the project will be recommended to the ODA for funding.
M A N U F A C T U R I N G
ALAMEDA CORRIDOR GETS $83.7 MILLION FEDERAL LOAN JAPANESE COMPANIES KEEN TO SET UP POWER PROJECT, LNG TERMINAL NEAR DIGHI PORT Japanese companies have shown interest in setting up a power project and an LNG terminal in the special economic zone (SEZ) close to Dighi Port in Maharashtra. The new private port, about 50 nautical miles away from the Jawaharlal Nehru Port Trust, is expected to start operations next month. Developed jointly by the Mumbai-based Balaji Infra Projects and Infrastructure Leasing and Finance Services, Dighi Port will be equipped to handle all types of cargo. Dighi Port is the last point for the Delhi-Mumbai Industrial Corridor, which is being developed with financial assistance from Japan. Saibal K De, Chief Executive, IL&FS Maritime Company, announced that one of the three berths being developed in the first phase is ready. The port will handle cargo such as coal, steel and automobiles. Vijay Kalantri, CMD, Dighi Port, said that the visit of a delegation from Japan is expected to result in major Japanese investments in the Dighi SEZ in areas such as power, LNG, automobiles and agri-business.
DHL APPOINTS NEW COO IN INDIA DHL, world’s leading logistics company, has recently appointed Vikas Anand as Chief Operating Officer (COO) for DHL Supply Chain India. Prior to his current position, Anand was Director of Operations at DHL Supply Chain India. Speaking on the appointment, Oscar de Bok, CEO – South & South East Asia, DHL Supply Chain, said, “We are delighted to appoint Vikas Anand as COO for DHL Supply Chain in India. Vikas, over the years, has successfully built an efficient operations business model. In his new role, he will be responsible for running DHL’s supply chain business in India, which includes all warehousing and distribution operations, business development and new projects implementation. He will oversee more than 500 employees in over 40 cities across India.”
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NEWS, VIEWS & ANALYSIS L A T E S T
H A P P E N I N G S
TWO PROMISING PORT PROJECTS IN THE MAKING Two projects – Phase I of the `3,200 crore International Container Transhipment Terminal (ICTT) at Vallarpadam, off Kochi, Kerala’s industrial and commercial capital, and the new international terminal of the Thiruvananthapuram International Airport in the state’s capital – were inaugurated recently by Hon’ble Prime Minister of India Dr Manmohan Singh. This has created a sudden flutter of activity for Kerala on the development front. The fruition of both projects augurs well for the advancement of the state’s transportation and logistics infrastructure. At the inauguration, Dr Singh said that currently, about 60 per cent of India’s export and import containers are transshipped through the neighbouring ports of Singapore and Colombo. Thus, shipping companies have to pay an additional sum of $300 per container and face delays of 7-10 days of transit time. Thus, if ICTT succeeds and performs competitively, Kochi can soon become one of the most attractive ports of call on the international east-west shipping route, thus breaking the monopoly of Singapore and Colombo.
JNPT, MUMBAI PORT TO FORM VENTURE FOR DREDGING CHANNEL Jawaharlal Nehru Port Trust (JNPT) and Mumbai Port Trust (MbPT) will form a special purpose vehicle (SPV) to execute a long-delayed dredging programme to deepen the common shipping channel that the two facilities use, informed L Radhakrishnan, Chairman, JNPT. The SPV will increase the depth of the shipping channel to 16.5 m in two phases, against the original plan of dredging to 14 m. The cost of the project is estimated at `1,400 crore, 75 per cent up from JNPT’s original `800 crore estimate. “A deeper and wider channel will allow larger ships, with a capacity of up to 6,000 20-ft containers, and reduce chances of collision. The contours of the SPV are yet to be finalised,” said Rahul Asthana, Chairman, MbPT. The SPV will handle capital and maintenance dredging. The first refers to fresh dredging to deepen the channel, and the second is for its maintenance.
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LAHOOD TOUTS $53 BILLION HIGH-SPEED RAIL PLAN IN THE US
M A N U F A C T U R I N G
DHL EXPRESS TO RAISE RETAIL NETWORK TO 1,000 OUTLETS
GOVERNMENT PLANS SPV TO SET UP FOODGRAIN STORAGE FACILITIES The government has decided to create a special purpose vehicle (SPV) to assess infrastructure requirements for foodgrain handling, transport and storage; and encourage private investment in grain storage facilities. The SPV will also assess cold chain infrastructure requirements and work to attract private sector participation in creation of such facilities, informed KV Thomas, Minister for Consumer Affairs, Food and Public Distribution. The government proposes to create additional food grain storage capacity of two million tonne in the country through setting up of modern silos. This will be part of the 15 million tonne of new storage capacity being created under Public Entrepreneurs Guarantee (PEG) scheme of FCI. The Central Warehousing Corporation (CWC) is also creating 10,000 tonne of temperature-controlled storage facilities on pilot basis. The Food Ministry has also recently constituted a Warehousing Developing and Regulatory Authority (WDRA) to introduce negotiable warehousing receipt system in the country. This would enable farmers to avail better credit facilities from banks for their financial needs and creation of quality warehousing in the rural areas.
CHINA PROPOSES COLOMBIA RAIL LINK TO RIVAL PANAMA CANAL
CONCERN OVER DELAY IN GREEN NOD FOR VIZHINJAM PROJECT
China is in negotiations over the construction of a rail link across Colombia to rival the Panama Canal. The 137 mile ‘dry canal’, linking Colombia’s Atlantic and Pacific coasts, would make it easier for China to export goods across Latin America and import raw materials such as coal. With regard to the proposal, Juan Manuel Santos, President, Colombia, said, “Studies have been conducted on the costs of transporting per tonne and the cost of investment.” The plan includes reassembling of imported Chinese goods at a new city near Cartagena, on Colombia’s northern Atlantic coast, for export across the Americas. Raw materials would be exported from Colombia and other South American countries from the Pacific end of the railway. Colombia, the world’s fifth largest coal producer, currently exports most of its goods through the Atlantic ports despite faster growing demand across the Pacific.
VS Achuthanandan, Hon’ble Chief Minister of Kerala, has informed that the State Government was viewing with concern the reports suggesting that there may be hurdles in the way of securing environmental clearances for the proposed Vizhinjam international port and container trans-shipment terminal. He also said, “There appears to be an attempt to thwart the project, citing the reason as proximity to the proposed Colachel port in neighbouring Tamil Nadu.” Achuthanandan also informed that the State Government was contemplating to counter these moves to get the clearances from the Union Ministry for Environment and Forests (MoEF) on time. Meanwhile, the State Cabinet has approved the shortlisted prequalified bidders for the Request for Proposal (RFP) stage. The State Government is going ahead with the implementation of the project and is acquiring land for construction activities. Steps are being finalised to begin construction and the State Government has proposed a budget of `450 crore to set up infrastructure facilities for the project.
MACQUARIE-SBI MAY PUT `1,000 CRORE IN INDIAN PORT
NEWS, VIEWS & ANALYSIS L A T E S T
H A P P E N I N G S
RAILWAYS SEEK INVESTMENTS FROM THE PRIVATE SECTOR TO THE TUNE OF `20,000 CRORE IN UNION BUDGET 2011-12 ‘RISE IN TURNAROUND TIME AT PORTS A WORRY’ The average turnaround time of major Indian ports has risen to 4.38 days in 2009-10 as compared to 3.87 days in the previous year, undermining the competitiveness of Indian ports, the Economic Survey 2010-11 said. “The average turnaround time in major Indian ports was 4.38 days in 2009-10 and was relatively higher in some ports like Paradip, Kolkata, Vizag and Kandla,” it said while noting the turnaround time of Singapore is less than a day. “The cause of further worry is the rise in average turnaround time and average pre-berthing time, and fall in average output per ship-berth-day in 2009-10,” it added. Besides, the average pre-berthing waiting time has also increased in 200910 to 11.67 hours, against 9.55 hours last year, the Survey said. The pre-Budget Survey noted the average output per ship berth day has gone down to 10,168 tonne in 2009-10, compared to 10,473 tonne in the previous year. As one of the remedial measures, the Economic Survey has called for following a holistic approach for improving infrastructure and services at ports through modernisation of the systems using latest technology. “The facilities at existing ports with regard to cargo handling, stevedoring, pilotage services, bunker services and warehousing facilities need to be upgraded,” the Survey points out, while calling for paying special attention on strengthening the facilities for handling crude oil. India has 13 major ports that carry about 67 per cent of the total traffic and 200 non-major ports, of which 66 handle traffic. It also called for increasing the drafts available at the Indian ports and providing different levels of tariff for different types of vessels or for different cargoes, so as to attract mother ships to berth at Indian ports.
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T H E
W O R L D
SOUTH KOREA TO INVEST $266 MILLION IN GREEN SHIPS South Korea will spend 300 billion Won ($266.1 million) over the next 10 years to develop technology for low carbon ‘green’ ships in a bid to reclaim its status as the world’s leading shipbuilding country from China. In a recent statement, the Ministry of Knowledge Economy said that two-thirds of the total investment would come from the government and the remainder from the private sector, betting on prospects that the world’s shipbuilding market would turn to energy-efficient, low-carbon vessels. South Korea is going after China, which won the title of world’s largest shipbuilding nation last year thanks to aggressive financing and price competitiveness. South Korea’s seven shipyards, led by Hyundai Heavy Industries, have set a 2011 target of $50.9 billion in orders, 35 per cent more than total actual orders last year, the ministry added.
SUPPLIERS CAN COUNT ON RAILWAYS’ EXPANSION DRIVE The Railway Budget has attempted to balance the need to expand the country’s transportation network, at a time when the Railways has been grappling with rising staff and pension costs due to the 6th Pay Commission’s recommendations. Besides, the ban on iron ore exports from Karnataka has led to a reduction in volume of freight handled by the Railways during the current financial year. Nevertheless, the budget’s procurement target of 18,000 wagons for the year to March 12, is broadly in tune with earlier years. And to help deal with the problem of wagon shortages, the budget has also made provisions for setting up two more wagon units on a joint venture basis or along with private sector players. Although, it may take a few years to actually set up and bring onstream these new wagon production units envisaged, the concern remains that in the medium term it could eat into the market share of the existing two leading private sector suppliers. For instance, Texmaco supplied 4,110 wagons to the Railways during year ended March 10. And in the case of Titagarh Wagons, it was 2,847 during this period. Besides, there is lack of clarity as to when orders from the latest procurement target will actually go to the respective players over the next few quarters.
M A N U F A C T U R I N G
INDIA SUPPLY CHAIN COST OPTIMISATION SUMMIT ON APRIL 21 As the resilience of the Indian economy accelerates revival in consumption and trade, discussions in the boardrooms have tended to include supply chain and its power to create a service differentiation and impact revenue & cost. At 13 per cent of overall cost, the supply chain component cost is higher in India than in most parts of the world, but therein lies the opportunity. The 2nd edition of the India Supply Chain Cost Optimisation Summit to be organised by Supply Chain Leadership Council on April 21 at Orchid Ecotel, Mumbai is designed to encourage manufacturers, retailers and logistics services providers to take a step back and re-review their product distribution strategy and supply chain in light of all the lean SCM models and best practices already available in India today. It will also help them learn what their counterparts and industry colleagues are doing to make their supply chains carry the most optimal cost. The event will comprise six sessions and interactive discussions efficiently packed in a day. Most sessions will have 2 parts. The first part will comprise presentations by the speakers. The second part will be devoted to discussions and Q&A. There will be a super-interactive panel discussion moderated by an industry expert. Some of the interactive sessions during the summit will include balancing service levels with optimal supply chain cost, technology, innovation and best practices in supply chain cost management, cost optimisation through optimal procurement and packaging and brass tacks. The summit will attract visitors from various industry verticals like manufacturing, retailing, sales, operations, supply chain, procurement and sourcing professionals from across India with a shared common goal to optimise supply chain costs sensibly.
MUNDRA PORT POSTED A 39.94% JUMP IN NET PROFIT AT `228.46 CRORE FOR THE THIRD QUARTER
PRICE TRENDS Road Freight Index Chart for February 2011 IRFI TREND FOR FEBUARY 2011 The RFI stood at 175 points for the month of February 2011, which was same as the month of January 2011 but it has registered an increase of 3 points in comparison to the same period last year.
ZONAL FREIGHT TRENDS There is a substantial increase in freight rates due to movement of apples from North Zone to South Zone as well as there is insufficient return loads from South. Heavy movement of seeds from Central Zone to Local Areas has resulted into shortage of vehicles towards North Zone from Central Zone, thereby increasing freight rates.
COMMERCIAL VEHICLES TRENDS FOR FEBRUARY (Y-o-Y)
The cumulative sales of commercial vehicles segment registered growth of
31% in April - January 2011 as compared
to the same period last year. Medium & heavy commercial vehicles grew at 38%
and light commercial vehicles grew at 26%.
FORECAST FOR MARCH 2011 2005-06
The RFI in March 2010 over March 2009
Index trend for six years
had registered an increase of 2%. The RFI for the month of March 2011 is expected to increase upto 3% as historically volumes & freight rates tend to increase this month due to financial year ending.
Indian Road Freight Index (IRFI), a service introduced by Transport Corporation of India (TCI), is an index of weighted average lorry freight rates across various routes, calculated based on the route density and the dynamic freight rates of routes across the country. Knowledge Partner: Transport Corporation of India (TCI); website: www.tcil.com; e-mail: email@example.com
MARCH 2011 â€˘ SMART LOGISTICS â€˘ 13
MAJOR PORTS MINOR POWERS The new Maritime Agenda 2010-20 intends to do away with the Tariff Authority of Major Ports (TAMP) and establishes a common port regulator for all the major as well as minor ports. The move will bring relief to the ports and the user community. Experts believe that if the Ministry of Shipping executes its decision of setting up a common regulator, then the industry is bound to reap huge benefits. SANDEEP PAI A level playing field is a concept that deals with fairness. It is an environment in which each player has an equal chance to compete, and all the players must follow the same set of rules. This concept has now gained momentum in the shipping industry as well. Constant lobbying and pressure from major ports have compelled the Shipping Ministry to establish a level playing field for all the ports.
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PORT CONCERNS The Tariff Authority of Major Ports (TAMP) was constituted in April 1997 to provide an independent authority for regulating vessel & cargo related tariffs. It fixes rates for the lease of properties for major port trusts and the private operators located therein. It also prescribes the rates for services provided and facilities extended by them. Ironically, TAMP has jurisdiction
HE INDUSTRY HOPES FOR A STRONGER REGULATOR FOR STRIKING THE RIGHT BALANCE BETWEEN THE INTERESTS OF INVESTMENT PROMOTION AND COMPETITIVENESS.
Vijay Sarma, Associate Director, PricewaterhouseCoopers, highlights the following issues with respect to 2008 guidelines in his article on TAMP: • The calculation of ‘Operating Capacity’ is not related to traffic forecast. This is beneficial if a terminal operates at high-capacity utilisation, but new terminals typically go through a ‘ramp-up’ period before reaching capacity. During this time, debt servicing burden is also at its highest. • The tariff set for any terminal at a port would be applicable for all the terminals handling that cargo in the same port for five years. The investment in different terminals for the same cargo can be different and does not necessarily depend on volume alone. • The guidelines do not give a clear idea of the impact of higher traffic numbers and operational efficiencies subsequent to the first review. There is a mention of ‘extraordinary events’ and ‘progressively higher norms’, but it is not clear whether TAMP will pass on the benefit of efficiencies and traffic. only over major port trusts and private terminals. This authority is empowered to notify the rates and conditionalities governing the application of the rates. At present, TAMP – the port regulator – decides the user charge or tariff ceiling for major ports. But, non-major ports – those under the State Government – have the flexibility to fix their own tariffs. This practice has seriously hampered the competency of major port terminals as compared to non-major ones. An industry source explains, “Several non-major ports are no less than the major ports in terms of capacity, so why should non-major ports be left free for market forces and only the major ports be regulated?” Apart from competitiveness in tariffs for major ports, even the user community faces problems due to the discrepancy in TAMP guidelines. In addition, there are other concerns as well, for example, issues like inconsistency in tariff scenarios faced by major and minor ports. Also, there is an incompatibility among major port terminals operating under different tariff guidelines. Investors face an uncertainty, which is further engendered by frequent changes in regulatory norms. Moreover, TAMP does not have a provision for appealing against its orders within the system. Aggrieved parties will have to approach the high court for redressal, which is a timeconsuming process. This authority, however, undertakes review of orders under exceptional circumstances. Only the Union Government has the power to modify the authority’s order or issue ‘policy directions’ on matters relating to port pricing.
The industry hopes for a stronger regulator for striking the right balance between the interests of investment promotion and competitiveness. This will enhance the prospects of private investment in the sector. The regulatory body should be transparent and must consult the ports and user community before taking any action. The government has been contemplating on this issue for quite some time, but recently hinted about making it happen soon. Although the details of the regulator and its functionality have not been finalised so far, the intention is now clear.
DEMAND & ACTION
Further, experts also believe that the new regulatory body may also see a change of name. TAMP would thus become the grievance redressal mechanism. The maritime states in the country, including Andhra Pradesh, Tamil Nadu, Kerala and Maharashtra, do not have regulators on the lines of India’s power sector. The State Electricity Regulatory Commissions regulate electricity tariffs in these states. Maritime state governments do not have their own regulatory authority. The new port regulator would govern the port activities, and thus provide a level playing field for all major and minor ports. There are 13 major ports in the country – Kandla, Mumbai, Jawaharlal Nehru Port Trust, Mormugao, New Mangalore, Kochi, Kolkata, Haldia, Paradip, Visakhapatnam, Chennai, Tuticorin and Port Blair. Apart from these, the other 187 non-major ports are state subjects. Even if the government retains TAMP, industry leaders believe that it should not be allowed to fix tariffs. Anil Singh, Sr VP and MD – Subcontinent, DP World, was quoted as saying, “TAMP should just function as an appellate body. It should
ITH THE SHIPPING MINISTRY SPECULATING ON ELIMINATING TAMP AND INTRODUCING A NEW REGULATOR FOR THE SECTOR, PORTS IN INDIA MAY SOON BE ABLE TO FIX THEIR OWN MARKET-BASED TARIFFS FOR HIGHER RETURNS.
Minister of Shipping Shri GK Vasan recently launched the Maritime Agenda 2010-20, a perspective plan of the Shipping Ministry for the present decade. At the event, Vasan spoke on the issue of establishing a port regulator at all ports for setting, monitoring and regulating service levels as well as technical and performance standards. Therefore, with the Shipping Ministry speculating on eliminating TAMP and introducing a new regulator for the sector, ports in India may soon be able to fix their own market-based tariffs for higher returns. Time and again the major port have spelt out that they are at a disadvantage and want the government to either make TAMP mandatory for all ports or free them from its jurisdiction.
not be fixing tariffs because this defeats the purpose of the market.”
THE PREREQUISITE After numerous rounds of appeal by the major port trusts, the Shipping Ministry is now considering the possibility of scrapping TAMP and bringing in a common regulator for all the ports. However, the role of the regulator is not clear. If industry and port officials are to go by, they want the government to allow the ports to function independently and markets to determine the pricing mechanism. Therefore, irrespective of the final action taken by the government, the attempt would be to bring all ports to the same level, that is, give them a level playing field.
MARCH 2011 • SMART LOGISTICS • 15
PLANS & POLICIES
RAIL BUDGET BYTES
ET G D U B RAIL 1-12 201
roval PPP app ore r fo w o m wind vate to will moti up single Setting me move and ate. In order s n ip o c o lc ti g e r a a es, w is a w to p players mand for coach r, Hon’ble te a iv r p e te e high d sed ay Minis meet th , Central Railw ounced rail-ba ail s n r e n , k a s a it s r n a d u h n a nerjee tories, wagon 0. The a B ta a fac 202 Mam ge s, coach r Vision industrie park under he s & freight, gau m l in o a ia fr tr tr s f y u acit ind er o line cap e numb ady easing th ing the railway ease the alre e r c in t a s lp th s a e e h im r in a l c a il t o in rem hw budge , and als 700 km, whic s continue to impact on n io s r e v t ec rate r to con freight per yea te or dir nhance 180 km rail lines. Rail e any immedia llectively will e b d o y. saturate there will not ail and road c gistics industr lo d R same an freight sector. y of the Indian c d the roa ity and efficien v producti (TCI) dia AL, tion of In AGARW ransport Corpora T E E VIN r, T e Directo Executiv
nt by evide pace. s a y unit his s pport vest in t g private o g in in in -hang u dg e t overn rs to a low f investo ework g the Rail B is , o ia ram over, licy f r ne s s in Ind e Rail, eer eage urrent po low. Mor h s c s e d e th an th soft liver. ever, How ments is es not de t India inves es but do KPMG , is s ic m t pro Logis & RIA, tation EKSA Transpor S N A r– GAG te Directo ia Assoc
ill dget w u B l i a its sR s year’ ncerned, yet ate i h t t a is co f priv ed th ticipat of logistics volvement o ith the n a s a e mod ts, it w est. W tive in nstrain ar as rail as a re and an ac m to the full s to how the o c l a c ctu as f es a ’s fis ediu inistry round story rail infrastru xploit the m ir perspectiv M l i a R a f e e n o a tur to the y… ment try to g in th Owing able to bring the develop to the indus leaders brin f the industr n o n y i e r o s b r t c s s i not igou indu nam phasi fresh v the dy 11-12, ed em renew have infused il Budget 20 d to change a e s ld have player cement of R udget is slat et shou ll and get g d d b n u B u u o y a a B the ann on sm he Railw ail d ’s R use ear beca relate in y s i y d l r h n t e in ma re a inist ms ate d r erage tructu the m at see he l u wo av nfras by wh g t . We below s in i vided from iderin inistry y n o as jectio ts pr far cr cons the m eeking r s cto pro stmen t is a ssible by is se inve budge y po faced lways ivate which i l h r l Ra e p ils of vested the ctica runc c the e a ta th in r l a p nci m er, de to be of th d, , r o a r e f s goo n v v e fi r e o d e c s e t w n d n Mo stme re. Ho inten xperie n very been inve 0 cro ds are past e ot bee e have in the e 0 t un the as n hem en enc 20,0 e f f ` ts thes Also, ment h ent sc investm confid ound o r f t e n tun me sed. ves estm ate ot o e g gap he or seg disclo vate in te inv of priv ke a l on th e the t to tors not pri priva up ill ta ays ridg sec ere eeking f the rying e, it w n Railw nt & b w s d c in ways tals o g in . Hen India estme Rail damen resultin s itself m the ate inv fun nged heme es fro t priv cha ting sc easur attrac nt. exis ding m ey can estme buil ore th for inv re bef uired , uctu RA nfrastr T req T I
16 • SMART LOGISTICS • MARCH 2011
MI Rail JAL rshiya A S ,A CEO
T nd freight MEs) a reduced enterprises (S uld have o medium argo, which w ost and c c t r n o io p t x c e transa tiveness in the d e c u eti e red its comp welcom increase market. We ernment v s oversea e of the go various v d the mo e in freight an edicated s D a e r e c th no in s to er the gards to with regard projects und mely P with re s P n P la d and r an ti ed p propos orridor (DFC) needs prope ay for better is C d Freight . However, th e light of the he Railway T y th 3i Polic tation to see nt of cargo. connectivity e r en e m m tt e v e le jor b o p im ther m emphasis on jor & non-ma o, o o m s y a g r la m a and c to f to and ent o needs Budget ial townships oother movem ost for the c str to indu better and sm ce transaction r u d fo e r ts r n o r p ill in tu which w r. e consum I) tries (AIA ANTRI, ciation of Indus L A K VIJAY All India Asso t, Presiden
s been ilway Budget ha mon The present Ra m co e th ur favo the designed to lify ol m attempt to masses. It did industry. e th as l el w as common man fare hike of passenger The absence a major as es m co tes Indian and freight ra e th d uters an relief to comm l. Of all things said ra industry in gene and visionary as far sitive po be to ed ne one hand, we and done, we concerned. On many for the is n tio ra ne ge as revenue Japan and Ger ins, while te with China, want to compe frastructure like high-speed tra we fail , in et of dg t pulist bu developmen e name of a po nary bent of mind th in r, he ot e io on th . A vis urces to do so the targets. We need to to create reso g in ev hi ac in lp envisaged he pt to make the alone will not m te at r ou in s ce ur so generate re sful. projects succes L, AK AGARWA Companies r, DRS Group of Executive Directo
The announcement that the Railway Ministry has saved `3,700 crore through austerity measures needs to be applauded. The allocation of 12,000 acre towards a dedicated freight corridor is a welcome step, but there may be challenges in terms of land acquisition that will need to be looked into. This year, the ministry has committed to 700 km of additional lines, which, if done, will improve connectivity. Though given the failed commitments of last year, these figures sound too ambitious. Although the Railway Ministry did not hike freight fares, it is the increasing ancillary charges that are a cause of concern. The introduction of e-procurement to improve transparency is another welcome step. On the flip side, while the government plans to increase freight tonnage to 993 million tonne in 2011-12, there were no real sops announced for the freight/logistics sector. Overall, the budget is welcome news for many despite certain challenges that need to be looked at.
try cs indus e logisti mitment th r fo om ble favoura t. There is a c corridors. dget is h t u ig h b e ig e fr e fr th w in Overall, is no increase on dedicated get is that ne d k th e u r r r b e o o the e w as th al, N plete th st Beng ry oints in to com the positive p unced in We o coach facto o e tr n f th e n o a m d e en nce One have be dia such as th y have annou r hand, ts c je o e e r In p th n the oth herein, or d South east an n factories, w ns. However, o freight corrid o e d o g g th a te a s a ic d ll e e and w of 18,000 wa as w the d e te e m s le a a p fr h m c e co tim pur pulated ment to commit tion of the sti a s a w men ere ct. while th there was no lete the proje p , m ts c o c je to pro needed finances A, Logistics Y SINH Leeway SANJA nder Member, ou MD & F
11 turned Budget 20 assenger y a ilw a R , ted ith p As expec a populist one w g constant. in e in out to b eight rates rema for touched fr n d e n e a b t o to fare n e se v tes ha rther lo Freight ra e Railways will fu us question th io fear that ortation. The obv e financial th sp ed road tran s unanswered is r enhanc I in a fo m d re e e t n , tha 0 e -1 th 1 k and ale of bottlenec us plans. On a sc ach and its r ambitio s egalitarian appro easures. m support fo r it budgetary the budget at 6 fo safety and security d te e d ra e e ld u -n o h w uc on the m emphasis N, tics ASIMHA TS NAR ector, DARCL Logis ir D ve ti cu e x E
In the budget, the Rail Minister has allocated `576.3 billion to upgrade and develop railway infrastructure. Though there has been a focus on developing the overall budget, no major emphasis has been given to the freight sector. However, a single window for PPP approvals is a welcome move and the ministry has also pushed for private sector involvement in the network through initiatives such as setting up wagon factories with private partners. INDRESH BATRA, Chairman, Jindal ITF & MD, Jindal SAW
ANIL KHANNA, MD, Blue Dart Express
ents governm This earlier . s e e r th u s y d b mea presente a multitude of mata Banarjee udgets a b d t. M e il is a le r m on’b pro r budge The shy and way Minister H chemes in he Even as a fl e r e s w s. ail e, ractical reaction entral R year, C e out with p vokes mixed welcome mov e a m t s . o e s a c g s s d le s e u g a B m h in arge co is mean ar’s Rail This ye in ticket surch using scheme n o h o reducti osed 10-year p the pro AL, AGARW ort N A W nsp PA MFC Tra Director, MARCH 2011 • SMART LOGISTICS • 17
TECH TRACK IT TRENDS IN LOGISTICS
HighJump launches supply chain management software
Integrated express and parcels software from Imtech
HIGHJUMP Software has recently launched HighJump App Station, a next-generation adaptable supply chain management software. The software is a collection of supply chain workflows that customers can browse and add to their warehouse management system (WMS). The HighJump App Station provides a new way of quickly and easily deploying new functionality, thus giving customers immediate access to supply chain innovations. It gives customers the option to select and install only the required features, thus solving several common problems of the conventional WMS software. Through the new software, customers can continuously access supply chain innovations, maintain only the functionality they need
IMTECH Logistics Software has introduced cargoNET, a fully integrated software system to provide seamless visibility to UK express and parcels carriers during their entire operation. The company claimed that the new software will help carriers reduce debtor days, provide proof of delivery, develop accurate time windows, reduce misroutes and late deliveries. The new system will help manage carriers’ key accounts and individual tariffs. It includes invoicing zones and consignment weights to provide turnover and revenue statistics for each customer. Rob Gibney, Country Manager, Imtech Logistics Software UK, said that in an increasingly competitive sector, express and parcels carriers must meet the challenge of providing guaranteed service levels for a broadening range
and keep scheduled upgrades quick and simple. It will also help personalise new apps without disturbing existing supply chain workflows and add functionality without costly, time-consuming custom coding. Russell Fleischer, CEO, HighJump Software, stated that the HighJump App Station is a natural evolution in the company’s long history of providing adaptable supply chain solutions. He added, “It provides our customers greater control over their systems and continuous access to supply chain innovations. We architect our solutions according to customer and market feedback, and the HighJump App Station empowers our customers to rapidly add new functionality while minimising risk and cost to their businesses.”
of delivery service demands, not just for B2C sectors, but also for specialised B2B sectors. The cargoNET system manages parcel pick-ups from a customer’s address and a return or third party operator, acting as a sub-contractor and is capable of full proof of delivery (POD) management. CargoNET will manage routing and scheduling of collections and despatch of all pick-up orders, giving the operator complete control of the transport planning function at line haul and collection & delivery route levels. It provides its customers with a complete real-time track-and-trace capability, while the system’s e-Print tool allows customers to label every parcel remotely. It also gives orders for collections and PODs electronically.
ALK integrates new transport management tool ALK Technologies has successfully tested and integrated the PC MILER/ Worldwide 24.1 routing, mileage and mapping software with the latest Descartes Transportation Manager solution. Descartes Transportation Manager is a cloud-based TMS solution used by shippers and third party logistics providers for shipment planning, execution and settlement of freight charges with contract carriers. The solution comprises order & contract management, optimised consolidation, rating & carrier selection, shipment tracking, freight bill auditing and performance reporting with multi-modal coverage. Bill Hnatiuk, Strategic Alliance Manager, PC MILER Solutions, said, “ALK is pleased
18 • SMART LOGISTICS • MARCH 2011
to integrate with Descartes Transportation Manager. PC MILER/Worldwide provides the industry’s most accurate truck-specific distances and transit times for use in network optimisation, freight payment, rating and carrier selection applications. This integration highlights Descartes’ commitment towards providing excellent services to its customers.” Descartes Transportation Manager works across multiple transportation modes and supports multiple currencies and languages. The solution uses a flexible and scalable cloud-based architecture that small and large enterprises can deploy cost effectively. PC MILER/Worldwide 24.1 includes a greenhouse gas emissions estimator to
calculate the carbon footprint per route, and customs vehicle profiles to keep route settings consistent for selected vehicle types. It will also provide a comprehensive postal code coverage of Australia, Brazil, India, Japan, New Zealand, Russian federation, South Africa, Turkey and Ukraine, as well as a comprehensive secondary road coverage in Western and Central Europe. Ken Wood, Senior VP – Product Strategy, Descartes Systems Group, said, “The integration of PC MILER brings robust and accurate worldwide distance calculation capabilities to Descartes’ Transportation Manager. Logistics professionals can evaluate money-saving options for road-based transport globally with this solution.”
YRC unveils new mobile tools to track shipments YRC, a subsidiary of YRC Worldwide (YRCW), has recently unveiled new mobile tools that allow YRC customers to track shipments, access latest YRC news and access customer service. The company is providing free iPhone and Android apps, along with a mobile website for other phones. Mike Naatz, Worldwide President – Customer Care Division & Chief Customer Officer, YRC, informed that the tools provide their customers another channel for service, tracking a shipment or chatting online.
“We want to use technology to enable people to do business with YRC as conveniently as possible. And our mobile tools allow YRC customers to enjoy the convenience of tracking their shipments anytime, and at any place.” Headquartered in Overland Park, Kansas, YRCW is a provider of transportation and global logistics services. It is the holding company for a portfolio of successful brands including YRC, YRC Reimer, YRC Glen Moore, Reddaway, Holland and New Penn. It provides China-based services through its Jiayu and JHJ joint ventures.
RedPrairie introduces data extractor REDPRAIRIE Corporation, a productivity solutions provider, has recently released RedPrairie Data Extractor, a new solution that provides seamless integration between SAP warehouse management (WM) and RedPrairie Workforce Management (WFM) technologies. This tool allows companies currently operating on the SAP WM platform to optimise labour spend and workforce productivity with RedPrairie’s best-of-breed WFM technology. The solution was developed to extract relevant data from SAP WM and translate these into standard WFM inputs. Scott Zickert, Product Manager – Distribution Products, RedPrairie, said, “Data Extractor leverages SAP WM and RedPrairie
WFM systems to their full potential without high cost and excessive ramp-up times of customs integrations. It enables seamless interaction of these systems, thus reducing the total cost of ownership while providing improved productivity for the implementing companies.” RedPrairie Data Extractor translates labour data from SAP WM to guide RedPrairie WFM planning for all the main functions of warehouse operations, including inbound receiving and put-away, replenishment, outbound picking, returns, cycle counting and user sign-on and sign-off. Since SAP WM and RedPrairie WFM are separate systems, the Data Extractor works with all versions of RedPrairie WFM at 2007.1 or higher.
MARCH 2011 • SMART LOGISTICS • 19
Illustration By: Sanjay Dalvi
INSIGHTS & OUTLOOK
Continuous pressure from stakeholders and regulators is driving companies to adopt a more environment-friendly approach. Although implementing green logistics is not easy, companies that have embraced advanced logistics modelling and product lifecycle management have developed a sustainable logistics for eco-efficient and eco-friendly transport and supply chain improvements. THE term ‘logistics’ is used to describe the process of transportation, storage and handling of products as they move from the source of raw materials, through the manufacturing system and to their final point of sale from where the purchase happens for end consumption. It also considers the associated reverse supply chain. Logistics involves activities such as goods transport, storage, inventory management, overall materials handling and related information processing. The major activities of logistics are central to economic development and social well-
20 • SMART LOGISTICS • MARCH 2011
being. It has been more than 50 years since logistics came to be considered a key criterion of business performance, a separate profession and a major field of study for academicians. However, in this period, logistics was managed and studied for purely commercial reasons. Monetisation and adding more to the purse was the sole motive of logistics professionals. The flipside is that all these years, the social and environmental costs, which are key components of logistics, were ignored. It is only over the last few years that the concern for the economy has
WHAT IS GREEN LOGISTICS? The last decade has seen a tremendous increase in the public and government concern for the environment. As a result, excessive pressure is building on major firms to reduce the environmental impact of their logistics operations. This has risen to a varied impact, in terms of the choice of externalities and distances over which their undesirable effects are felt. Transportation of goods has a negative impact on the local air quality, generates noise pollution, leads to accidents and,
overall, makes a noteworthy Hazardous Substances: The environmental Climate Change contribution to global policies in diverse geographies can be Safety Air Quality warming. largely classified as regulatory (bans, Access Noise Health Land Use In recent years, the impact of permits and standards), financial (gains Equity Biodiversity logistics on climate change has for adherence and reduction) and Sustainable Waste Logistics called for increased attention, educational (environmental reporting, Society Environment partially because increasing audits, product labelling, etc). Green IT controls on pollution and road knowledge and concerns are leading to Growth Efﬁciency safety improvements have the development of legislations along all Employment alleviated other environmental these areas. Assortments of IT hardware Competitiveness Choice problems. Also, new scientific in an organisation need to follow certain research has revealed that specifications to obtain Energy Star Economy global warming presents Ratings. This has been effective in the US a much greater and more since 2007. Controlling carbon trace of Figure 1: Impact of Sustainable Green Logistics on everyday living instantaneous threat than what IT is also becoming significant to obtain was thought earlier. impact is becoming very important. Green environmental certifications. Penalisation Goods transportation is expected IT is thus as important to an industrial by policing agencies to implement carbon to account for about eight per cent of manufacturer as it is to a telecom or an credit obedience is another inspiring factor energy-related carbon dioxide emissions IT services organisation. for Green IT initiatives. Many inducements worldwide. The inclusion of warehousing Climate change: Global warming impacts are being provided by the governments and freight management are likely to add weather, ice-caps and glaciers. On (tax incentives) and service companies to another three per cent to this total. Making average, mountain glaciers and snow embark on projects such as cooling system logistics sustainable in the longer term will involve more than cutting down carbon 5Rs and brand value emissions. Despite recent improvements, the potential still exists for significantly In fast moving consumer goods (FMCG), things move fast in the area of cutting down other environmental costs eco-design packaging. Businesses are employing the 5Rs and integrating of logistics. these into the packaging design approach. Businesses are realising that The objective of logistics is to this type of thinking not only creates value for consumers but also for coordinate these activities such that the brand. customer requirements are met at Following are the 5Rs that must be implemented for a greener planet: minimum cost. Earlier, this cost was defined in purely monetary terms. As • Rethink: Investigate consumer behaviours and expectations to provide concern for the environment rises, with choices about the cycle of the product and packaging. This companies must increasingly take into research can then be used as a pathway for all engineers, marketers account the external costs of logistics and designers. associated mainly with climate change, air • Re-engineer: Study packaging, manufacturing, logistics, retail and user pollution, noise, vibration and accidents.
DRIVERS OF GREEN LOGISTICS Following factors drive green logistics: Mounting energy costs: Increasing power and fuel costs, coupled with the cost of related raw materials used in infrastructure building and functioning have resulted in people looking for green alternatives to achieve significant price reduction. Reducing the power consumed by IT apparatus, using energy-efficient lighting & cooling, substitutive energy sources, recycling and tele-presence can help develop the bottom line in business financial sheets. Global alarm among corporates over Greenhouse Gas (GHG) emission: Many corporate policies now have targets for decreasing their impact on the environment. With IT equipment, infrastructure and people having a significant footprint in any business today, identifying and lowering its
constraints, concerning both engineering and marketing fields before briefing designers. • Remove: Optimise packaging layers to accomplish manufacturing, logistics, retail and user expectations without losing the key packaging functions. • Reduce: Work to decrease packaging material without affecting product performance during its production, transport, distribution and use phases. • Recycle: Consider the lifecycle of product packaging to improve the way used material re-enters the process at the end of the cycle, especially from users’ point of view.
cover have reduced in both, northern and southern hemispheres. This widespread reduction in glaciers and ice-caps cover has contributed to the observed rise in the sea level. Regulations like Environmental Protection Agency and Restriction of
retrofits, apparatus consolidation and self-generation through interchangeable sources to make up for some of the savings costs for commissioning these transformations. Improved community awareness on environmental issues: Widespread
MARCH 2011 • SMART LOGISTICS • 21
Green logistics, continued
improve public image • Reduce distribution and shipping costs • Develop distribution and manufacturing flexibility • Develop an action plan for varying amenities, inventory policies, associates, etc, derived from looking into risks, opportunities and trends.
Water and Energy
Raw Material Extraction
PACKAGING REDUCTION Impact
Air, Water and Waste
Packaging is an extremely noticeable shopper marketing tool, but it is also a momentous cost to the supply chain, accounting for up to 12 per cent of the charge of many typical consumer goods. This grouping creates an ultimate opening for consumer goods companies to move towards a greener supply chain and force brand growth by moving to a more sustainable methodology for packaging strategy. Benefits of Packaging Reduction: • Sustainable packaging programmes can make a considerable involvement towards carbon reduction across the supply chain • Strategies such as packaging elimination, lightweighting and selection of
Figure 2: Product lifecycle and its impact on environment
ENVIRONMENTAL IMPACT OF SUPPLY CHAIN The early stages of conceptualisation and design of a product happens within closed doors. This is followed by the use of water and energy. In stages such as raw material extraction, manufacturing, transportation and disposal, the output (air, water and waste) has adverse impacts on the surroundings. Major consumer product companies are now looking for a greener supply chain to reduce the adverse environmental impacts and offer an eco-friendly service to end consumers. Following are four areas where a successful green logistics implementation can have a positive impact on the overall supply chain of an organisation: • Network Optimisation • Packaging Reduction • Sustainable Procurement • Warehouse Layout Optimisation
NETWORK OPTIMISATION This is the fundamental type of modelling that can be done to optimise the hierarchy and inter-related transportation flows that can bring considerable cost and carbon reduction in the supply chain processes of a consumer packaged goods company. Clogging leads to amplified emissions in the following two ways: • Directly through increased emissions per kilometre when vehicles are moving at unproductive speeds. • Indirectly through increases in the number of expedited orders and through re-routing of vehicles.
22 • SMART LOGISTICS • MARCH 2011
Research shows that restructuring the network can give an 11 per cent cost and a 10 per cent CO2 emission reduction. Some of the key steps in network optimisation through the green logistics route are as follows: • Lowering the distance travelled by a product in the supply chain. • Increasing local sourcing might increase the costs of raw materials, but this could be more than balanced by reducing the distance travelled, which in turn, would lessen carbon footprint and shipping costs. It will also trim down contact to supply chain risks together with unpredictable fuel prices, High long & erratic lead times Network Optimisation and currency exchange Sustainable risks. Procurement Warehouse • Using superior vehicle Layout Optimisation technology and design can Packaging Reduction also perk up fuel efficiency and reduce total costs. Product Redesign • Replicating with carbon footprint and limiting considerations including facilities, inventory, manufacturing conversion, Low High etc to develop a strategy Ease of Implementation Low that considers ecological Figure 3: The chart depicts the positive impact on the environment for each area as factors besides costs using the techniques of green logistics are put into practice. carbon constraint-based solutions. alternative resources help consumer Therefore, a win-win situation may goods companies ensure overall cost well be possible, reducing emissions and reduction. reducing total supply chain cost. Green Packaging: This includes methods Network optimisation can be taken to to conceptualise products, taking into the next level to realise additional green account the environment conservation benefits in multiple areas: factor. It also considers the product’s • Hedge against increasing energy impact on the surroundings at all stages expenses by structuring the complex of its lifecycle. For example, implementing network green packaging techniques enables • Move towards stable and expected the use of recyclable or biodegradable energy costs material for packaging. Likewise, there are • Trim down GHG emissions that can Impact
consciousness is likely to lead to privileged choices in vendor selection based on Green IT practices. A flourishing Green IT tactic is largely reliant on an end-to-end obedience across supply chains, along with sharing the best procedures in companies across the supply chain.
Green logistics, continued
washing detergents that work efficiently in cold water, thus reducing the energy consumption of a washing machine. The future of ‘green’ packaging would make it possible to reduce the mass of packaging materials such as a soda bottle. Green packaging holds enormous promise through material quantity reduction, but it must be kept in mind that it is more difficult to recycle thin or light packaging (thin plastic film) than heavy packaging (glass). At present, packaging represents 23 per cent of the waste weight and 37 per cent of waste volume. Hence, the key concern here is to solve the consumer’s perceptions about packaging waste. For consumers, it is a packaging invasion, for having to sort through more and more stuff every day, from metal to paper, to plastics. However, it is more ecologically reasonable to sell packaged juices in clusters – in spite of a more downbeat consumer perception. Although this daily process frustrates the consumers, it has also created a huge prospect for brands. It is time to push ecodesign further, looking more profoundly and accurately at manufacturing, product design, logistics, retail and user behaviour. It is now more about improving ergonomics and use, supporting reduction and recycling, developing alteration and promoting recycling of materials.
OPTIMISING WAREHOUSE LAYOUT Warehousing is fundamental to the logistics space. A surplus of techniques and technologies are available today to warehouse owners to drastically reduce the impact of their buildings on the environment. Construction materials: Using recycled concrete, steel, asphalt and other resources in new warehouse construction delivers noteworthy environmental benefits, as does providing construction waste to recycling companies. Manufacturers can also use locally manufactured supplies. • Day-lighting: Installing skylights and clerestory windows in distribution amenities allows companies to use natural light as a basis for interior illumination. Day-lighting harnesses the solar energy, reduces electricity usage and CO2 emissions and improves the quality of indoor environment for warehouse employees. By using day-light dimming, switching and
24 • SMART LOGISTICS • MARCH 2011
using motion sensors in offices, an estimated 50 per cent of electricity can be saved. • Lighting systems: Occupiers can reduce a facility’s total energy consumption by installing energyefficient lighting systems. Warehouses conventionally employ metal halide lighting, but commercially available T5 and T8 fluorescent lights last longer and drastically reduce current usage, although for a higher front-end investment. Energy-efficient warehouse lighting has a 1 year payback period. High-reflectance roof membranes: Customarily, warehouses are built with rubber roofing membranes made of Ethylene Propylene Diene Monomer (EPDM) (M-class) rubber. These membranes are black and can absorb heat and sunlight. White Thermoplastic Polyolefin (TPO) roofing offers the same performance at essentially the same cost, with the added benefit of reducing a building’s load on its cooling system.
SUSTAINABLE PROCUREMENT The approach for ‘green’ procurement should include organisation, people, process and technology. It should be treated as a vehicle that provides value, achieves better economics, enhances the brand image and benefits the environment. Through various sustainable initiatives, procurement organisations can realise incremental savings up to 12 per cent of the cost. These initiatives can include energy, supply, operations and logistics. The principle of sustainable ‘green’ procurement is based on the outlook that companies can derive benefits from the areas of economics, environment and society. Also, numerous
studies conducted regarding the benefits of a ‘green’ procurement strategy have found common factors in the abovementioned areas.
GREEN IT SOLUTIONS IT plays a substantial role in most of the new initiatives adopted by organisations. Similarly, for the success of green initiatives, it can play a key role to ensure that the desired goals are achieved and are reaping the expected benefits. Supply Chain Optimisation: IT can play a critical role in optimising transportation routes and ensuring that goods are delivered in an energy-efficient and costeffective manner. Transportation managers can mitigate the effects of unexpected events by automating the transportation planning process. Green Supply Chain Realisation: IT can help reduce resource usage while business processes are executed by streamlining business processes. Automation for permitting end-to-end paperless processes can play a major role in reducing waste. To achieve this, Mobility Solutions are required to enable dynamic scheduling of transportation tasks and realtime tracking. These solutions work as a platform for collaborating documents and providing a robust internal and external mailing system. These solutions can help companies achieve paperless processes, thereby reducing the need for paper and the need for printing, stocking and transporting paper-based work orders. This, in turn, can help reduce a manufacturer’s expenses on natural resources that are exhausted for maintaining the paper-based process of its business.
• Process Optimisation/Lean Manufacturing
• Integrating Sustainablity in Product Design
• Total Cost of Ownership (TCO)
• Design Manufacturing
• Decrease Energy and waste in Product’s Material, Packaging and Logistics
• Closed Loop PLM • Holistic Manaufacturing
• Improved Collaboration, Visibility and Agility
• Compliance with Regulatory requirements (REACH,RoHS)
• Socially Responsible Procurement
• Neutral or reduction of organisation carbon emissions • Analysis of organisation’s Redesign, Reuse, Recycle and Reduction initiatives.
Figure 4: Common factors for sustainable procurement
• Client Satisfaction and achieve delivery excellence • Increased Collaboration and Communication (Internal and External)
Radio Frequency Identification Device (RFID) technology can also be a huge enabler of Green Supply Chain management strategies. RFID-enabled tracking of energy footprint data can allow companies to understand the who, why and how of a product that has reached a particular stage in the supply chain. RFID tags can carry carbon footprintsrelated information and help organisations to analyse and monitor their supply chains from different environmental perspectives. Green Supply Chain Collaboration: IT solutions that provide an environment with the involvement of all partners in the supply chain will definitely help organisations achieve better utilisation of transportation assets. More importantly, this will reduce overall energy requirements. Collaborative planning forecasting and replenishment are other areas where IT can add value. Effective use of these techniques will result in higher accuracy of forecasting, thus reducing the resources consumed in production. Disposal: Simple recycling and disposal processes have gained importance due to regulations passed by various governments directed to reduce the impact of business on the environment. Europe has already passed several laws to this effect, including the RoHS and Waste Electrical and Electronic Equipment (WEEE) directives. The RoHS directive restricts the amount of certain substances in WEEE. The WEEE directive sets collection, recycling and recovery targets for electrical goods, and is part of a legislative initiative to solve the problem of huge amounts of toxic e-waste. Performance Metrics: There is a need for the best-of-breed software and performance metrics for measuring the carbon footprint and reporting the results accurately.
BENEFITS OF GREEN SUPPLY CHAIN BEST PRACTICES Environmental Benefits: These benefits are visible across retail chains, manufacturers, logistics and transportation service providers. These include improvements in energy and waste reduction, less packaging in related activities and decreased GHG emissions. Manufacturers can decrease GHG emissions and waste by investing in Leadership in Energy & Environmental Design (LEED)-certified green buildings and retrofitting their distribution centres
to be more environment-friendly. These processes will enable manufacturers to access carbon credits. And then, unused credits can be sold to other organisations worldwide. Business benefits: Manufacturers that can achieve positive environmental improvements by reducing energy consumption and decreasing packaging in distribution activities can be termed as Best-in-Class (BiC). The BiC manufacturers gain business benefits through better distribution efficiency and improved compliance processes. Also, BiC manufacturers experience 1-19 per cent improvement in product differentiation, distribution expenses and risk mitigation strategies. Alongside, over 80 per cent of BiC consumer packaged goods (CPG) logistics and transportation service providers have improved significantly in terms of enhanced distribution efficiency, reduced distribution cost and increased service differentiation. They have also witnessed a 20-50 per cent improvement in customer retention and compliance processes.
CHALLENGES Implementing green logistics has never been easy. Some of the challenges that companies could face are as follows: Lack of information about green supply chain best practices: Organisations might have a limited view because of lack of information on the decree and green supply chain best practices. As previously construed, investments costs do not play a big role here. Lack of tools to optimise the supply chain with environmental management: Although a number of tools are available for supporting green supply chain initiatives, the challenge lies in selecting the right one for a particular initiative. Global sourcing makes tracing of carbon footprint difficult: Since the advent of global sourcing, tracking the carbon footprint of finished products has become difficult. However, the practice of requesting carbon footprints from suppliers is slowly progressing. For example, the carbon disclosure project being piloted by 11 multinationals, including Dell, L’Oreal and Unilever. The project asks participating organisations to request carbon footprint information from suppliers and promote emission reduction measures across the supply chain.
THE NEXT LEVEL The methodologies mentioned earlier are meaningful and practical. These provide good returns to the environment without commanding a giant up-front economic burden on warehouse developers. In the long-term, however, regulators and customers can be anticipated to raise the level on builders, pushing for higher ecological performance from their facilities. To move forward, the industry needs to triumph over one of the largest handicaps in this area – that is, shortage of hard data that quantifies the costs and payback of individual environmental building features. Companies using these warehouses need to develop a regular, metrics-based approach for a methodical assessment of sustainable technologies. Following sustainable technologies and design features can be incorporated for a long-term impact: • There should be improvements focussed on the energy performance of amenities, such as external building fabrics that lower air leakage and loss of energy and improved skylights that enhance natural lighting and lower consumption of electrical power. • Companies should include renewable energy systems, such as roof-mounted solar panels, heat-absorbent solar walls and solar thermal hot water systems. • Third-party engineering consultants can be brought on-board to examine costs and paybacks for various features planned to be included. Finally, no industry can be called sustainable unless it remains cost-effective and continues to convey a good return to investors. This idea is often lost in the debates and deliberations that take place about sustainability today. However, better information and a scientific methodology should enable companies to focus on techniques and technologies that deliver the highest impact at the lowest cost. This would civilise the world we live in without diluting business performance and the bottom line. Prabhu Palanivelu, Functional Consultant – Consumer Products Practice, Tata Consultancy Services (TCS) E-mail: firstname.lastname@example.org Madhur Dhawan, Functional Analyst – Consumer Products Practice, TCS E-mail: email@example.com This article is an excerpt from the whitepaper, ‘Green Logistics’ by TCS.
MARCH 2011 • SMART LOGISTICS • 25
INSIGHTS & OUTLOOK
DOES IT MAKE SENSE TO
T MEN T S E INV orENSE EXP
Thanks to the advent of leading MNCs, the Indian logistics industry is experiencing an inspirational growth rate, be it in terms of offering best in class products & services or adopting state-of-the-art technologies. Though the changes have been quite rapid, the industry is still trying to get away from its unorganised stature. In such a scenario, does going green make perfect business sense? PRERNA SHARMA
Illustration By: Sanjay Dalvi
FOR quite sometime now, green has been a buzzword. The term has not only attracted attention from the manufacturers because of stringent climate change concerns being thrown upon them, but it has also percolated down the entire value chain. Yes, we are talking about that crucial link of the process, which is often the misunderstood and neglected segment of the whole value chain. This link can make or mar the success of one’s products or services… It is the supply chain. We have been quite late in accepting the supply chain as a mainstream segment. But slowly and surely the industry is trying to find a grip on what is known as the weakest link of the business – the supply chain. As the dynamics of the industry are gradually evolving, so is the supply chain. The Indian logistics & SCM industry is still at a nascent juncture and is trying to shun its unorganised stature. With the growing presence of MNCs, this industry is gradually adopting the process of going green. But before getting into the nitty-gritty of how companies can go green, the fundamental question, which still remains unanswered is that in a price sensitive
26 • SMART LOGISTICS • MARCH 2011
market like India, does it really make sense for companies to go green? Today, green has become the focal point of all discussions: be it at seminars, conferences, annual meets or boardrooms. Some companies might consider it a CSR campaign; some still term it an additional investment. For the latter part, the result is often non-rewarding, while some regard it a futuristic activity blaming that Indian logistics industry is still at an evolutionary phase. Most of us would stand by them as it makes complete business sense to first augment the business and then, manage logistical activities. All these discussions point towards one central question. Do we really understand what green logistics is all about? In simple terms, it means optimum utilisation of resources (fuel, manpower, asset, etc.) to reduce the carbon footprint. By doing this, companies ultimately generate an additional cost centre. Now, the answer to the first question is crystal clear that green logistics is not only a mere CSR activity; it greatly impacts the topline & bottomline of companies. Giving a perspective on the same, Rajeev Saxena, VP – Contract Logistics, Agility
Logistics, informs, “It is a myth that if we go green, we necessarily need to spend extra. It is not true always. Some of the green steps can actually be very cost effective. Making some of the green aspects mandatory would for sure make our supply chains green. Today, in the absence of any legal thrust, the industry may tend to ignore this angle.” Seconding his thoughts, Deepak Kumar Goel, Logistics Manager & GST Project Manager, P&G Home Products, says, “Firstly, there has been a rapid change in the environmental conditions owing to rapid growth of industries/population. It is the corporate social responsibility of companies to ensure that we preserve the environment. Secondly, going green will definitely have rewards in the long-term. Rapidly growing fuel prices/ input cost are a key part of the overall logistics cost. By spending extra to go green, companies can surely save on a few of the input costs.” Cementing his views, Yogesh R Antad, GM – SCM Functional Excellence, Cummins India, opines, “The resource constraints challenge that we see today makes the need for green
initiative more concrete. It should not be looked upon as an extra expense. If planned properly, you could actually see the returns in the short-term itself.” The government has been quick in implementing green emission norms for the auto & the electronics industry. If the same thrust is given to the logistics & SCM industries, the whole scenario will see a dramatic shift. Substantiating this, B Ashok, Associate Director – Supply Chain & Manufacturing, Eli Lilly & Co India, avers, “In India, the government has led the way in driving the green movement in various sectors, in most of the environment initiatives. I think that the consumer electronics industry going green is a classic example of making green mandatory. The way Bureau of Energy Efficiency has taken efforts to spread consumer awareness on how they will benefit by adopting energy-efficient products and put stringent rules & regulations on companies who are into the business is commendable. Similarly, the way Euro norms have been introduced in the auto industry is a good case study. I think if the logistics industry gets this kind of a thrust from the government, we will be far better than what we are today.” Sriram Venkateswaran, Director – National Supply Chain & QA, Hardcastle Restaurants (McDonalds), is of the view that going green makes perfect business sense. However, there are a lot of infrastructural requirements for the same where governments and organisations will need to work together to see how a sustainable model can be achieved. Today, the green movement has been transformed from just a cause to save the environment into a full-fledged economic activity/revenue stream. Environmental responsibility has shifted from a corporate slogan to a business imperative. Green SCM improves operations by employing an environmental solution, which: • Improves agility: It helps to mitigate risk and speeds up innovations • Increases adaptability: Green supply chain analysis often leads to innovative processes and continuous improvements • Promotes alignment: It involves negotiating policies with suppliers & customers that results in a better alignment of business processes & principles. Despite the payoffs that some big businesses have received after going green, many companies still view
sustainability commitment through the lens of compliance. When companies progress beyond compliance and extend their sustainability actions strategically, they become more nimble and better equipped to meet the rapidly changing demands of the marketplace. Giving an Indian perspective, Ashok says, “As far as India is concerned, it is a very competitive economy. Any company,
corporate customers, who would always prefer to work with ‘greener partners’. Most Indian companies, on the contrary, may not give any weightage to their vendors who are making extra efforts in going green.” Echoing Saxena’s sentiments, Antad says that all the green efforts should be driven by the top management. They need to train, educate and eliminate
Organisations should try to strike a balance between cost escalation on account of going green and the advantages that one gets from going green. There should be a more collaborative approach between leading service providers, who may be competitors otherwise, to create green awareness. Such a collaborative approach will also push customers to take note of green efforts and to partner cost of these efforts. RAJEEV SAXENA, VP – CONTRACT LOGISTICS, AGILITY LOGISTICS which would want to be a part of this growth story, would want to adopt unique ways to beat competition. This is where we can see green getting prominence. I think companies can go green only once they realise the attached value proposition of the same. Everything is dictated by cost & customer requirements. And so, everything has to be linked to match customer satisfaction and the perceived benefits of going green.” “If companies can articulate a winning formula on how to make ‘green’ work for them, they will reap benefits in the long-term. All these initiatives can also take shape once the government is proactive in ensuring green logistics drive. India spends a huge amount of money in importing crude and any savings in logistics will help the government conserve foreign exchange in a big way. We need to adapt to the fact that we are in an evolving market and if we can make such changes right from the start, the results will be impressive. The government should incentivise the adoption of green technologies,” he adds. To this, Saxena opines, “Environmental awareness among the decision makers will also make a big difference. If the key decision makers in the organisation understand the importance of going green, then we will be able to see more and more organisations taking up the initiative. Going green also enables the organisations to attract more global
the perception that implementing the green initiative would translate into additional costs. Also, there should be transportation collaboration within different OEs/service users on same lines. To maximise its effectiveness, greening the supply chain initiatives should not be separated from the mainstream activities of the business. Rather, it should be fully integrated with and reflect the core value proposition of the business strategy. Green SCM should yield measurable results that are part of an integrated business-sustainability plan. Business managers should directly participate in their design and implementation. Let’s take a look at some of the leading examples showing the impact on supply chains: Wal-Mart, which launched a sweeping business sustainability strategy in 2005, recently set the goal of a five per cent reduction in packaging by 2013. The retail giant expects the cut in packaging will save 6,67,000 metric tonne of carbon dioxide from entering the atmosphere. Moreover, the company anticipates $3.4 billion in direct savings and roughly $11 billion in savings across the supply chain. Nestlé employs an ongoing, company-wide sustainability programme that has generated significant environmental and financial benefits. The company has applied the strategy to its use of product packaging by initiating an integrated
MARCH 2011 • SMART LOGISTICS • 27
Green logistics, continued
approach that favours source reduction, reuse, recycling, and energy recovery.
THE CHANGE AGENTS Rapid changes in the business environment, including increased internationalisation & global competition and social & environmental trends, such as climate change, population growth & aging, wealth accumulation & distribution, nutrition, health and education, affect companies’ supply chains in various ways, resulting in new & evolving requirements on supply chain design. Prominent features of leading green supply chains include an emphasis on lifecycle costing, asset efficiency, waste reduction and service innovation & recycling. Once executed effectively, it stimulates product and service innovation, improves asset utilisation, and deepens customer relationships and service levels through a shared focus on reducing waste and cost. In this day & age of stiff competition, new factors such as the availability of natural resources, traffic congestion in urban areas, energy consumption, CO2 emissions and the permanent rise of transport costs are becoming increasingly critical to the success of any business. It requires a strong relationship with suppliers, which will result in increased business
• Competitive environment • Green solutions at economical cost. Apart from these, some of the very critical measures, which have been significantly impacting the green movement in the Indian logistics landscape, include: A globalised economy triggering green shoots Owing to the impact of globalisation, supply chains have become more lengthy and complicated. It has simply become a daunting task for companies to maintain the same foresight and control that they traditionally had. It is all about money Traditional supply chain strategies balance cost efficiency and service level (on-shelf availability). Consumers, rising energy and other commodity costs and legislation have pushed companies to redesign their supply chain networks in order to mitigate the negative environmental impact. Sustainability is a third lever that addresses cost, service levels and environmental & social impact.
THE FOCUS AREAS Once companies are motivated enough to take the green route, supply chain managers need to focus on the following three areas: Greener product and packaging design Designers will need to use the maximum
A simple & quick way to go green will be rainwater harvesting in warehouses, saving fuel by optimising logistics, tapping solar energy on the roof of large warehouses, sun reflectors to give sunlight inside the warehouses, etc. I think overall leadership of the company should be committed to make it happen. Otherwise, it will not work. DEEPAK KUMAR GOEL, LOGISTICS MANAGER & GST PROJECT MANAGER, P&G HOME PRODUCTS
opportunities and will help in influencing them effectively to reap better benefits. Going green also makes a difference in a supplier’s business portfolio as he can gain first-mover advantage. Keeping all these critical factors in mind, the triggers behind the growth of green logistics are: • Government’s proactive measures • Need for effective compliance mechanism • Stringent rules & regulations • Customers’ increasing awareness regarding green products & services
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amount of environmentally safe product components and finished goods. Also, packaging needs to be more biodegradable and minimally harmful to the environment. Supply network compliance It is not good enough for a company to be environment-friendly if any of their suppliers are not adopting eco-friendly measures. Therefore, it is of utmost importance for companies to do an audit of their suppliers and their suppliers’ suppliers to ensure every firm – both
local and global – complies with green guidelines. Reverse logistics As governments, at both national and regional levels, start imposing increased regulations on recycling, up-cycling etc., supply chain systems need to accommodate products being returned for recycling or disposal at the end-of-product life. This demands a truly closed-loop supply chain, where goods have to return to the supply chain to be broken down and properly disposed of.
REWARDS OF GOING GREEN Companies that adopt a pro-environment policy will see numerous tangible and intangible positive results. Early adopters of environmental strategies and green supply chain initiatives: • Mitigate business risks by differentiating themselves from competitors, transforming their companies into industry leaders, building credibility with stakeholders and attracting investors • Reduce operating costs • Motivate better performing suppliers, become preferred vendors in green supply chains and attract consumers in the rapidly growing green marketplace • Preserve business continuity by attracting (the interest of) top job candidates, enhancing employee satisfaction and enhancing market access & degrees of business strategy freedom • Create a significant competitive advantage by creating brand distinction and recognition.
DOES ‘GOING GREEN’ GENERATE REVENUE? One of the biggest constraints in going green is seen in the lack of comprehensive strategies as well as in assessing related financial impacts. It is needless to say that many companies are unable to quantify the costs that could be avoided or would arise after shifting to a green supply chain approach, nor are they able to determine how additional costs could be funded. In fact, most of the research estimates suggest that there is no easy way to quantify the cost of going green. According to Rotterdam School of Management paper, only a limited number of initiatives for environment-friendly production have proved to be profitable. Companies should look at the cost of sustainability initiatives as an investment and should look for good trade-offs between environmental
impact and costs. The return on investment (RoI) of going green can be more sales, increased market share, enhanced visibility, happier employees and a better brand. Some surveys suggest that sustainability is seen as an opportunity for revenue growth. Additionally, cost savings and competitive advantage have been identified as the top two business drivers for green SCM, reinforcing the view that supply chain efficiency and innovation, consistent with sustainability goals, should be the primary objectives of green supply chain initiatives. Although final customers are the main drivers for a company to push forward green measures, passing on additional costs to customers is not considered a viable option for the financing, since they would not be willing to assume these extra expenses. In this regard, the first step towards integrating sustainability in logistics should be to start monitoring and reporting on key environmental and social performance indicators. This is needed in order to gain insight into the current environmental & social impact and to make improvements without large initial investments, wherever possible.
THE ACTION PLAN There is no one-size-fits-all approach to sustainability, but here is a good action plan: • Investigate where your company can conserve resources and compose a strategic sourcing and supplier engagement • Engage your employees as champions of the effort • Implement conservation measures throughout operations and facilities, improve efficiency of site operations and balance the economies of stock
Small incremental steps to go green • The two major controllable factors in transportation are empty miles and unused trailer capacity. Utilise transportation networks to create an optimisation capability that allows carriers, as well as private and dedicated fleets, to operate significantly and more effectively by hyper-utilising those assets across multiple shippers, enabling all parties to realise cost benefits through the elimination of empty miles. • Make a resource commitment to ensure that there is a financial benefit associated with any changes made and continue to make the initiatives core to the business. • Avoid making use of manual waybill/receipt. Adopt smart technology solutions. A simple way is to capture the sender’s phone number and send an SMS for confirmation of collection of parcel. A small sticker containing the waybill number can be stuck on the parcel, and people are careful enough to make sure that the address is absolutely clear on the package. The package details can be entered at the service station, and then mapped onto the waybill, which can be used for tracking purpose. • Deploy energy-efficient lighting systems in warehouses • Waste food conversion into natural fertilisers • Minimise the use of wood for packaging. Try using recirculation packaging material • Use more transparent sheets in the roof to save on electricity • Regular training to drivers, which would ensure efficient fuel usage and thus increasing profitability; training by organisations (like PCRA) and introducing incentive scheme for the most fuel efficient drivers • Using energy-efficient bulbs in warehouses • Take a long-term look at the paybacks and consider that the leaders in your market will be the ones that can crack the eco-friendly code. • Emission estimation and the corresponding plantation drive to nullify the carbon points. levels, service and order quantities • Optimise network & transportation and provide integrated service management, returns, reverse logistics and parts management • Communicate your green efforts to stakeholders.
GREEN IS HERE TO STAY The green SCM is here to stay, for most
It will be difficult for people to get a buy-in from the management, till the time they do not see tangible benefits in going green. To harness the green potential, there has to be an industry & governmentled initiative. There has to be a vision, which has to be articulated by the industry. If it is just left to the companies individually, it will take a longer time to get implemented. And companies will always treat it as an incremental investment & not an essential expense in gaining marketshare. B ASHOK, ASSOCIATE DIRECTOR – SUPPLY CHAIN & MANUFACTURING, ELI LILLY & CO INDIA
of us the ‘green revolution’ has not yet started. With the green consciousness gaining prominence these days, there is a constant pressure on logistics service providers as well as manufacturers to redesign their supply chains in order to supply products that are eco-friendly in terms of sourcing, production, delivery, usage and disposal. In this scenario, tools & techniques which equip the supply chain executives in analysing carbon footprint as well as resource management would prove to be a crucial ally in greening the supply chain. In a nutshell, taking green efforts will offer the biggest bang for the buck, and for this reason it is recommended that the LSPs start acting on it now to ensure profitable growth in the long-term. The question we need to ask ourselves is that are we ready to take on the green challenge? If you still think that your business is too small or too service-based to benefit from going green, think again! You might be at the disadvantage of losing a new business opportunity. The choice is yours…
MARCH 2011 • SMART LOGISTICS • 29
INSIGHTS & OUTLOOK
GREEN SUPPLY CHAIN
COLLABORATE OR WASTE,
THE CHOICE IS YOURS Effective Information Flow
Effective Product Flow
Credit Management Stock Management Early warning of outbound Asset Management
Early detection of product not arriving Put-away
Picking RF Scanning
Cross-dockling Expected product does not arrive
Yard Management Damaged Goods
Route Planning RFID
Go green is gaining prominence nowadays among companies, which are taking initiatives to keep the environment green, clean and habitable. But this requires a holistic approach involving governments, corporations and people, in order to realise the potential of green logistics. This certainly calls for a dramatic shift in the way companies perceive their supply chain in harnessing green benefits. Take a look…
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TODAY, there is no disagreement that compliance with environmental regulations, minimising supply chain process waste and adopting green practices help reduce greenhouse gases and carbon footprints. Additionally, firms that take the time to drill down the details of green initiatives find that going green can be commercially viable, while creating sustainability models and measurable value.
FIND OUT WHAT IS WRONG? It takes a holistic approach to master environmental challenges in an optimum manner. Certainly, supply chain logistics impacts green initiatives, especially as it relates to CO2 emissions from air, ocean and truck freight operations. However, related supply chain activities like warehousing and distribution, if inefficient, create noise pollution, require special fuel consuming materials-handling equipment, large labour forces and drain electrical & water supply while potentially polluting the surrounding soil. Temperature-controlled products intransit or in storage demand a constant supply of electrical or diesel-generated power. Excessive or unregulated road use also causes road damage, which results in energy-consuming repair services. Vehicles pollute air, water and ground with poor engine performance, accidents and spills.
IMPLEMENT BETWEEN AND ACROSS SUPPLY CHAIN PARTNERS These common logistics pollution complaints are heard of on a daily basis, but it is important to stop and understand a vital perspective. “When you are surrounded by alligators, it is difficult to remember that your original objective was to drain the swamp.” Air pollution and emissions of greenhouse gases, water pollution and noise pollution can be reduced more effectively through well implemented supply chain planning, execution and partner collaboration. A combined integrated player effort can help take the waste out of the supply chain. This is a bold and somewhat ambitious claim. However, people should focus on eliminating true waste in the supply chain rather than just driving down cost or resource use for a specific supply chain component like logistics, which, in many cases, simply drives up another participant’s cost and resources demand. An inefficient supply chain drives excess truck and air shipments, warehouse space
Must do’s for supply chain waste reduction Lower logistics cost and reduce time to market: A lower cost usually means that someone is providing a service or a product that used less material or energy to produce it. Faster delivery does not necessitate air shipments, rather the layout and use of a more streamlined flow of goods bypassing unnecessary stops and handling. Green the supply chain, not just the logistics: Logistics, by itself, gets more attention because of fuel consumption and exhaust emissions. However, to lessen particulate matter and toxic air pollution, there is a need to look at the happenings from the perspective of the entire supply chain. Controlling events across the complete order lifecycle will give a better chance at driving more efficient supply chain planning and execution. demand and high labour hours. Introducing innovative means to improve efficiency can drive vertical and horizontal benefits among all supply chain participants and encourage behaviour for greening the chain, and not just the links. Now that the focus is on what really matters and who needs to be involved to ‘green’ the supply chain, what can be done about it?
DRIVE AWARENESS ON THE NEED FOR GLOBAL STANDARDS COMPLIANCE Dave Meyer, VP – Sustainable Economic and Environmental Development Solutions (SEEDS), Global Alliance (Northwest Operations), observes the changes taking place in some of the companies across the world: • There are emerging sustainability standards that embrace supply chain management. • This year, the international Organization for Standardization (ISO) unveiled its ISO 26000 Corporate Social Responsibility guidance document. • In addition, two prominent organisations, UL Environment and Green Seal, unveiled and vetted two sustainability-focussed product (GS-C1) and organisation (ULE 880) standards, both of which may markedly affect supply chain behaviours in the future. • Wal-Mart, IBM, Proctor & Gamble, Kaiser Permanente, Puma, Ford, Intel, Pepsi, Kimberly-Clark, Unilever, Johnson & Johnson and Herman Miller among others have announced serious efforts to engage, collaborate and track supplier/vendor sustainability efforts. • Nestle, Corporate Express, Danisco, Starbucks, Unilever and leading apparel industry players have stepped up to address issues such as human rights, fair labour and sustainable development in
areas in which they operate across the world. Each of these companies and others, like Wal-Mart, have embraced the ‘whole systems’ approach. Dave’s conclusions point in the right direction. By supporting the entire product value chain and meaningful forms of supply chain collaboration, such as sharing intelligence and know-how about the environment, technologies and regulations, we raise the sustainability bar for all. Listen To The Customers But why should a firm take all this trouble? If not for corporate social responsibility (CSR) and environmental concern, there is a new trend underway wherein the customers remind a company about green initiatives. A research from IFS shows that almost 77 per cent of manufacturers feel that they are being held accountable by customers to open up about the environmental impact of their businesses. More importantly, most opined that their existing ERP software did not give them the information that they need to drive improved green supply chains. About 87 per cent of data that they need was only available in hard copy.
PLAN AND IMPLEMENT FOR OPTIMUM EFFECT Look For Total Green Supply Chain Solution Now that all are aware, onboard and ready for action, a good first green step is to think ‘Life-Cycle’. And one must walk through the entire internal and external supply chain processes to determine the lowest carbon cost options and what is missing. The green trail will start with upstream purchasing practices, move along the logistics path and end with ‘endof-life’ environment-friendly disposal of potentially hazardous goods. Procurement Activities Matter With regard to upstream compliance,
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Green supply chain, continued
one must ask oneself how green is his purchasing? Has an Environmentally Warranted Product programme been set up? Is there a ‘green’ supplier certification process to confirm their ISO-14001 practices and that the products and parts purchased do not contain banned substances? Implementing Green Logistics is Crucial Once the materials are in compliance, one needs to seek methods for moving more goods via smaller carbon footprint modes, eg. ground or ocean versus air, where the number of grams per twenty-foot equivalent unit (TEU) kilometre by air can be nearly 25 (versus truck) and 70 (versus ocean) times higher, respectively. Fast Growing Quantities of Returned Goods When one is comfortable that product design, packaging, purchasing, production and distribution logistics are independently and collectively aligned for ‘green’ results, the question that must be addressed is whether these environment improvement practices are all that can be done? When a firm has done the work necessary to establish green procurement, green manufacturing and green distribution, they may think it is ‘go-to-market’ time with their new green branding. However, one could forget a critical element if the same green standards have not been set across one’s returns management and reverse logistics operations. Importantly, has one made a sincere commitment to practice the 3Rs – Reduce, Reuse and Recycle? Reverse Logistics Is Often Ignored Most producers and distributors know that reverse logistics, with 12 steps for each step in forward logistics, is not easy to manage. In-house skills and supporting software lag real-world demand, and hence, returns management programmes falter and do not meet expectations. In fact, most firms ignore tackling return problems directly and simply add the tasks on to the list of things to do in the forward logistics distribution desk. The problem with this is that most people do not have the skills for setting up and managing both forward and reverse logistics or, if they do, there just does not seem to be enough time to complete this ‘bottom-of-the-list’ chore as distribution to clients will always take precedence over returned goods. Potential Returns Management Solutions If the above is true for the return
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operations, it is time to look at outsourcing to third party disposition specialists (3PDS) or third party service providers (3PSP) specialising in reverse logistics. Better yet, consider a ‘cradle-to-grave’ electronics goods asset management specialist like Attero, a three-year-old Noida-based firm, leveraging technology for improving the environment. The firm is structured to perform comprehensive core returns management services like pick up, disposition, reverse logistics, refurbishment and international standards recycling in a highly integrated and automated fashion. Their operations are based on a sophisticated IT platform supporting a cloud-based returns management application. Equipped with the best set of economics, quality service, certifications by ISO-14001 and ISO-18001, the Ministry of Environment & Forests, CPCB certification and committed major investors, Attero is making a difference.
HOW CAN TECHNOLOGY MAKE A DIFFERENCE HERE? With the general lack of effective technology for returns management, both reverse logistics efficiency and supply chain partner collaboration suffer as they are unaware of the current events. Without full visibility, affordable technology is available, but firms are deeply entrenched with industrial weight ERP platforms and are busy trying to get their return on investment (ROI) working. Complete communications between supply chain partners is not just two-way in practice, it can be five-way spanning the typical SC players and covering each order lifecycle event. The drive is to have the right information before the right decision-maker at the right time so that shipments move along the optimal route with the least amount of handling at the lowest cost. If there is a gap in the information flow, shipments can incur both higher freight and carbon costs.
WHAT TECHNOLOGIES DRIVE A GREEN SUPPLY CHAIN? Based on the order flow from the manufacturer, supplier, buyer, logistics operator, distributor to the retailer, the information ‘bus’ leaves the station when an order is placed and moves along what can be termed as ‘documentation’ and/ or a ‘status update’ path in support of the physical goods movement. Within the
logistics component, information exchange and shipment visibility at the goods carrier level are often overlooked and data, if collected, is done haphazardly. Thus, it is important to consider ubiquitous collaboration between the above five and each physical goods carrier. Example Supplier And Carrier Portal Software Software providers like shipX, a Bangalore-based software firm, uses the Software as a Service (SaaS) approach with a cloud-based IT. It has a transportation management system (TMS) platform to manage information exchange at the three critical B2B participant levels: • Order level: Between supplier and buyer • Logistics management level: Between supplier or buyer client and third-party logistics (3PL) • Transportation management level: Between supplier, 3PL, carrier and buyer. The TMS can also be readily scaled up for B2C, bringing in the end client so that order and order status visibility updated in real-time by the key supply chain participants is made available online to the end customer. It is noteworthy that a SaaS data centre such as this combines the operations of many companies, drives efficiencies, reduces IT hardware & network needs and directly reduces the amount of CO2 emissions. SCM Planning Perspective There are scores of software applications with sophisticated functionality for business process improvement. IBM, ARiS and Cognizant have developed business process modelling in line with SCOR and GreenSCOR, Version 9, which incorporate best environmental practices into the entire supply chain planning practices.
ENVIRONMENT-FRIENDLY BEST PRACTICES The aforementioned firms have gone through fundamental preparation and execution steps to achieve what can be considered ‘green’ best practices. Typically, it starts with pre-compliance groundwork entailing thorough examinations of existing internal firm and external partner operating practices and a careful assessment of what it takes to be fully compliant. When ready, a firm moves on to the regulatory compliance stage, completing and documenting all the steps to meet industry, government, client
and accredited international associations’ requirements and enforce the same in a responsible and sustainable model. Before and after regulatory compliance, a firm should address the aforementioned supply chain and logistics processes to ensure that the best ‘green’ practices are in place. Beyond compliance, best practices include observing higher standards of efficiency and anticipating regulatory change. This could involve a fifth step for enhanced supply chain collaboration, thus tightening the green supply chain activities among trading and service partners. This can take a firm to a new level of profitability and added value creation through enhanced supply chain collaboration.
WHAT IS THE PROBLEM? Technically, e-waste comprises a steadily multiplying range of obsolete electronic devices or end-of-life electrical and electronic units such as computers, monitors, television & display devices; telecommunication equipment such as cellular phones & pagers, calculators, audio and video devices, printers, scanners, copiers and fax machines. It also includes electrical appliances such as refrigerators, air conditioners, washing machines and microwave ovens. The Basel, Switzerland institute on global ‘e-waste’ management officially considers ‘e-waste’ as hazardous material. Leading governments agree that a significant number of components of such electronic equipment are considered toxic and are not biodegradable. In September 2008, Ministry of Environment & Forests, India categorised e-waste as hazardous. In addition, every cell phone, laptop or PC system sold contributes to the fast-shrinking supply of earth’s pure metals such as zinc, lead, copper, tin, nickel, gold and silver. Recycling these metals help reduce the carbon footprint and protect natural resources.
THE CHALLENGE FOR INDIA Yes, e-waste processing produces billions of dollars in fine metals like gold, silver, copper, palladium, aluminium and platinum, thereby presenting an attractive economic opportunity. However, e-waste also generates toxic chemicals like zinc, lead, cadmium, mercury, polyvinyl chloride and arsenic. These chemicals, if left unattended in the open, pollute the air, ground and water while creating serious health issues for the entire population and not just
the scrap dealers handling the discarded electronics and electrical appliances. In India, an estimated 95 per cent of all e-waste (non-working electronic goods) is recycled by unauthorised recyclers in an unorganised sector, which include local scrap dealers. Most of these scrap handlers use crude and highly unsafe methods for recycling e-waste. Some of the processes involve soaking circuit boards in acid, followed by manual scrapping to extract metals with the residue thrown into open drains or open burning that releases carcinogenic air pollutants. This results in severe environmental and health hazards. Such unchecked activities without proper protection for workers are hazardous not only to the labour involved but also to the air, water and soil. Organised recycling of this hazardous waste is the only answer to this problem.
AN ESCALATING PROBLEM According to the MAIT-GTZ e-waste Assessment Study, India will create 4.7 lakh tonne of e-waste in 2010. This estimate is expected to escalate rapidly and hit eight lakh tonne by 2012. A Gartner forecast shows PC sales now at 12.5 million, up from an estimated eight million just two years ago and still growing at a pace where two billion PCs can be estimated by 2015. Mobile phones are projected to reach 600 million during the same period.
WHAT IS BEING DONE ABOUT THIS? In April 2010, the Ministry of Environment and Forest sponsored a policy push for organised recycling of e-waste. According to the e-Waste (Management and Handling) Rules 2010, “The producer of electronic goods including household appliances, computers, toys and medical equipment shall be liable for collecting any e-waste generated while manufacturing and will have to channelise it for recycling.” After passing the electronic equipment responsibility law, the Indian Government is now considering a more stringent e-waste policy towards electronics goods manufacturers, which holds them responsible for their products from ‘cradle to grave’. As such, all e-waste is supposed to be given to only Central Pollution Control Board (CPCB) authorised recyclers. Proper qualification requires a recycler
to have government Registration for Environmentally Sound Recycling of Hazardous Waste by CPCB, Ministry of Forest & Environment.
WHO SHOULD HELP? Currently, there is low awareness about the hazards of e-waste and the need for recycling in a controlled environment. How many people know that e-waste should never be disposed with solid and other household wastes and not be given to scrap dealers or unauthorised recyclers, rather, only to CPCB-authorised recyclers (eg. Attero)? And how many people know that recycling is a small price to pay for a healthy and safe environment? An increasing number of environmentally responsible companies are taking back their used products for recycling. Such channels should be used vigorously by all, but true awareness and true responsibility must come from people, ie., at the individual level. The major challenges existing in the e-waste industry today are: • Lack of awareness • An Indian psyche of making profit out of e-waste rather than ethically disposing it • Unorganised e-waste disposal market allowed to strengthen • Lack of enforced government policies on e-waste • Companies with global presence follow different practices in India and other countries. Thus, the best solution is to create awareness across government, corporations and individuals that e-waste must be recycled in an environmentfriendly manner by an authorised recycler. India needs responsible citizens to care for its country’s environmental health and for its family’s safety by taking up the initiative and speaking out, spreading awareness and triggering mass collection drives. Lloyd Sanford is Founder & Director, Applied Logistics India and Head – SC Solutions, Attero. He has over 20 years of senior executive supply chain logistics management experience in global transportation, forwarding, logistics, warehousing and supply chain technology. With more than three years ‘hands on’ India operating experience, Lloyd is able to help firms solve complex logistics problems. E-mail: firstname.lastname@example.org
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COST-EFFECTIVE WAYS TO GO GREEN
Illustration By: Sanjay Dalvi
INSIGHTS & OUTLOOK
Green logistics is more than just reducing packaging or carbon footprint. It involves making environ-friendly choices in supply chain design and execution, including efficiently managing the reverse supply chain and removing wastes. However, as fuel costs rise, economic and environmental concerns will further converge, making it imperative to have a cost-effective way of cutting down carbon footprint. Making the supply chain green will ensure eco-friendly growth pastures… PURNA PARMAR ENVIRONMENTAL issues have dominated media headlines in recent times, with government agencies, businesses and the general public all thinking about ways to reduce their carbon footprint on the local as well as global canvas. Many corporations have embarked on green
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packaging programmes, recycling initiatives and other corporate social responsibility (CSR) campaigns to publicly demonstrate their green initiatives. Laudable as these announcements are, the fact is that inefficient transportation methods in the modern supply chain represent a
significant part of the ecological problem. This is well illustrated in a recent report stating that as much as 75 per cent of a company’s carbon footprint comes from transportation and logistics alone. Today, changing consumer sentiments and the complexity of global trade are
forcing companies to modernise their supply chains, thus shifting the focus away from transport optimisation, purely in terms of freight cost and utilisation, towards one that considers ways to minimise the ecological impact of the supply chain on the environment.
COST REDUCTION INITIATIVES This idea of a ‘green supply chain’ is not new. In fact, it has gradually grown to become a global movement towards green transportation thinking and lean supply chain principles. Many supply chain professionals are beginning to recognise the importance of efficient green supply chains. The increased awareness in the industry has rightly encouraged companies to rethink their transportation strategies. “At Agarwal Packers & Movers, we are doing our bit by replacing the use of carton boxes with trendy bags for packing and using recycled paper multiple times for packing. We also have facilities for online booking of household goods, thereby eliminating the process of manual booking, and hence lesser use of paper. Obviously, some paperwork cannot be avoided, but if used properly, the technology can not only help save the environment, but also provide attractive cost cutting for logistics enterprises,” informs Ramesh Agarwal, Chairman & MD, Agarwal Packers & Movers. As the modern supply chain consists of hundreds of decisions and processes, each with discrete economic and environmental implications, remodelling of a supply chain must be balanced against impact on existing relationships and procedures. So how can an organisation tune its supply chain to reflect environmental best practices and also ensure an efficient transportation process to meet demands? An interesting case study was highlighted in a 2007 UK Government report, which identified the environmental benefits obtained by changing the supply chain model. Supermarket chain Tesco adopted an approach, whereby trailers were modified to make them suitable both for pick-up from suppliers in pallets and delivery to stores in rollcages. These roles had traditionally been operated independently. According to the research, by combining store delivery with supplier pick-up, Tesco was able to reduce total mileage operated by three million miles, reduce fuel consumption by 1.7 million litre and reduce CO2 emissions
by 4,600 tonne. Similarly, an independent lifecycle study done by RMIT University, Melbourne, Australia, reported that CHEP’s returnable plastic crate system for produce delivers environmental performance and financial value in the supply chain. The study found that CHEP’s system generated significant benefits for customers compared with a single-use corrugated cardboard packaging system in Australia. The key results of the study highlight the sustainability efficiencies of the CHEP system when compared with a single-use corrugated cardboard system. The efficiencies identified include the following: greenhouse gas emissions were 70 per cent less than single-use corrugated cardboard system; 95 per cent less solid waste were produced than single-use corrugated cardboard system because of a reduction in manufacturing process waste, even if all cardboards are recycled after use. It requires 85 per cent less water for washing the CHEP crates than for manufacturing and recycling of a single-use corrugated cardboard system. “India is now witnessing the same level of advocacy, focus and interest from the industry. CHEP provides returnable plastic
crates to the automotive industry, replacing the conventional cardboard packaging where benefits are already being realised by auto component suppliers and original equipment manufacturers (OEMs) across India. Using the CHEP solution means fewer truck movements due to lower equipment relocations, which has a direct impact on reducing greenhouse gases,” observes Pranil Vadgama, President, CHEP India. He adds, “We are currently working and validating with Confederation of Indian Industry (CII) on a specific calculator, which would also calculate the amount of CO2 reduced in the manufacture of a car based on CHEP’s returnable packaging system.” In the current climate, it is vital that companies define and measure each element within the supply chain. Benchmarks can then be rolled out across the network to evaluate the impact of any changes made. If operating a green supply chain was purely an altruistic exercise then companies would simply choose the most cost-effective carrier using the most eco-friendly mode of transport and assets. However, corporations have to balance this against the need to remain not just efficient but also profitable, which brings
UICK TAKE Cost effective ways to go green: • Replace the use of carton boxes with eco-friendly bags for packing • Use recycled paper multiple times for packing • Facilities for online booking of household goods, thereby eliminating the process of manual booking, and hence lesser use of paper • Modify trailers to make them suitable both for pick-up from suppliers in pallets and delivery to stores in roll-cages • Returnable plastic crate system for products delivers environmental performance and financial value in the supply chain • Environment-friendly fleet of vehicles that are driven efficiently • Use reusable plastic pallets over single-use wooden pallets • Implement scrap management systems to minimise the impact on the environment • Use insulated rooftops & hollow cement blocks instead of bricks to control the temperature in the warehouse • Design warehouses such that natural light and ventilation can be optimally utilised • Make wider gates of warehouses for easy loading & unloading of goods without disturbing other warehouse processes • Use eco-friendly gases for cold storages.
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Cost-effective ways to go green, continued
Success Stories Reducing CO2 emissions in logistics In order to promote green logistics on a global scale, Panasonic has set the target of reducing its CO2 emissions per basic unit by at least one per cent year-on-year for both international and domestic transportation. In fiscal 2010, the company’s global CO2 emissions from logistics activities came to 0.78 million tonne, of which international and domestic transportation accounted for 46 and 20 per cent, respectively. In Japan, 97.1 per cent CO2 emissions resulted from transportation by truck. The global CO2 emissions per basic unit from international and domestic transportation decreased by 13.7 per cent from the fiscal 2009 level, due to modal shift activities from decrease in air transportation. In fiscal 2011, the company aims to conduct its green logistics activities in cooperation with foreign countries to achieve and share more results on a global scale. Modal shift The amount of Panasonic’s domestic railroad freight transportation in fiscal 2010 totalled 15,479 five-tonne containers. As a result of joint transportation with companies in other industries using four proprietary containers and round-trip transportation in cooperation with freight carriers, Panasonic achieved much improved results over the previous fiscal year and reduced CO2 emissions by 8,476 tonne. Thanks to modal shift from truck to railroad for the shipment of our LCD TV, ‘VIERA,’ from the Utsunomiya Plant, Panasonic became the first company in the industry to be approved to use the ‘Eco Rail Mark’ for flat screen television. This modal shift also contributed to a reduction in CO2 emissions. In China, Panasonic transported motors for home appliances by rail over 1,500 km from Guangzhou to Hangzhou, thereby reducing CO2 emissions by 280 tonne annually. The company was able to shorten the lead time – which is longer than transportation by truck – by reducing the waiting, loading and unloading times by using its own dedicated wagons. Use of biodiesel fuel (Japan) Panasonic is using biodiesel fuel made from waste cooking oil for vehicles used in its production, procurement and marketing activities. In fiscal 2010, the company increased the use of biodiesel fuel to 100 per cent in the Tokai and Tokyo metropolitan areas and started using it for joint transportation with other companies. The use of biodiesel fuel helped the company reduce its CO2 emissions and save costs in conjunction with round-trip transportation. Inputs by Panasonic Global
into play a far wider set of variables. For instance, one can take something as apparently simple as the choice between two road carriers. Assuming that both have available capacity, the selection will typically come down to those who can meet the required service level at the lowest cost. But what could be done if one has a new, environment-friendly fleet of vehicles that are driven efficiently, whereas the other has an older fleet, a less rigorous maintenance policy or fewer checks on driving habits? In order to take account of the resulting environmental impact, the
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choice of fleet may be less predictable. Similarly, considering more traditional areas of transport optimisation such as consolidation of shipments, the choice of fleet is typically based on the ability to optimise freight utilisation while meeting required service levels at minimum cost. In a green supply chain, it is necessary to introduce the variable of environmental impact, if by altering the shipment date this could lead to greater efficiency.
USING TECHNOLOGY AS KEY While considering the hundreds of
processes and decisions involved in a supply chain, it is understandable why the challenge of assessing the carbon footprint, let alone reducing it, is one that many companies may be hesitant to attempt. Today, technology is available that can function across the entire supply chain network and apply specific business rules and logic in conjunction with powerful algorithms. The crucial part is that the engine behind such technologies are designed to maximise transportation based not just on traditional factors such as cost and asset use, but also flexible enough to incorporate these new environmental variables. Discussing various technologies implemented by companies, Arif A Siddiqui, Director, Coing, said, “Technology has helped companies overcome the cost barrier and fuelled the use of ecofriendly alternatives. Companies are doing their bit by implementing green strategies in packaging and warehousing. For instance, companies now prefer to use reusable plastic pallets over singleuse wooden pallets. They are also trying to use recyclable and biodegradable packaging. Huge amounts of scrap are generated in warehouses due to unpacking and reloading of products; hence, many companies are now using scrap management systems to minimise the impact on the environment.” Likewise, the designing of warehouses is done in an eco-friendly manner. To this, he adds, “Companies have started using insulated rooftops and hollow cement blocks instead of bricks to control the temperature in the warehouse. The warehouses are designed such that natural light and ventilation can be optimally utilised. Also, the gates of warehouses are designed in such a way that if one truck is unloading, it does not block the entry or exit of other trucks waiting to be unloaded or loaded.” Regarding technology use in cold storages, he explains, “In the cold storage industry, earlier, only a few companies were using eco-friendly gases, as these are expensive. However, due to changing customer sensibilities, companies now prefer these eco-friendly gases. Moreover, it has now become a government norm to use these eco-friendly gases for cold storage warehouses and supply chains.” Indian corporates are now taking the initiative, though in small steps. Many firms are going in for ‘green technologies’
– from techniques to generate energy to non-toxic cleaning products. Some companies are interested in technologies that eliminate lead, while some others opt for those that recover material from the product during processing. In order to comply with social responsibility and profitability factors, companies are also developing electronic components and systems that consume low amounts of electricity, and thus are aptly called energy-saving gadgets. Interestingly, production of energy-efficient appliances is costlier than other products. “At Panasonic, we had introduced Eco Ideas Factory in Singapore – a model facility that will play a crucial role in achieving Panasonic’s green commitment in the Asia Pacific region. It will manufacture eco-friendly products and develop sustainable industry practices. More importantly, this will raise the level of eco-consciousness in the community,” says Manish Sharma, Director – Marketing, Panasonic India.
SPEED BREAKERS ON THE WAY With today’s complex globalised supply chains, it is necessary to understand, evaluate and optimise all transportation modes – domestic and international; inbound and outbound; and from simple point-to-point to complex multi-modal, multileg and cross-docking operations. According to Siddiqui, lack of awareness is one of the biggest hurdles in ensuring a seamless green supply chain management (SCM). “There are no institutions to assist companies in finding green solutions for their SCMs. If this is institutionalised and there is greater awareness on ways to go green, more companies can adopt these green initiatives and, subsequently, it might turn out to be inexpensive and more cost-effective to go green than sticking to traditional SCM processes.” As the world’s population grows, living standards improve, economies develop, the biggest global challenge is to do all these in a sustainable manner instead of affecting the environment. Many organisations today are moving towards the green route, as most consumers want to associate themselves with environment-friendly products. Sharma says, “Green technology requires constant innovation and R&D. Firms cannot aspire to be flexible if they do not innovate. Continuous innovations in terms of product as well as marketing strategies will raise the stature of the organisation in the market.” Discussing the problem areas faced by companies, he elaborates, “While companies are trying to meet this need, a serious challenge lies on the consumer front, as most of them distrust the credibility of green products. Therefore, to enhance consumer confidence, marketers of green products need to be more transparent in their approach and should refrain from breaching any law or standards relating to products or business practices. Another problem faced by market realities in developing markets is the cost of such products.”
THE GREEN MOVEMENT As the world is changing, companies are increasingly evaluating the environmental impacts of their supply chains and scrutinising raw materials used in production as a part of their commitment to protecting and preserving the environment. However, while they continue to use innovative and cost-effective methods of going green, it is imperative that these methods are profitable and have a balanced SCM system.
MARCH 2011 • SMART LOGISTICS • 39
INSIGHTS & OUTLOOK
LEAVING A GREEN TRAIL
Illustration By: Sanjay Dalvi
The increasing pace of businesses today has increased the pressure on logistics service providers to ensure safe and timely distribution of products and materials. However, this demand for fast delivery comes at a cost to the environment. Therefore, service providers must look at ways to attain their target of delivery without affecting the environment, thereby reducing global warming. SUDHIR MUDDANA GLOBAL warming is one topic which can raise at least billion eyebrows. Go east or west, if one spells the word global warming, it is assured to get attention. The word brings a lot of scepticism to mind and anyone heard insensitive to it, is isolated. Be this the reason or any other, companies are now well aware of the environmental aspects of their businesses and are constantly working on finding ways to contribute towards reducing their carbon emissions. One of the prime factors contributing to global warming is carbon dioxide (CO2) emission from vehicles that run on fossil fuels like gasoline and diesel. These includes emissions from the daily plying passenger vehicles as well as fleet vehicles used to transport cargo.
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GREEN FLEET: A CRUCIAL NEED Maintaining a vehicle fleet is vital in logistics. However, this comes at a price. Beyond monetary cost, fleet vehicles are a significant source of air pollution. Every gallon of gasoline or diesel fuel burned releases about 22 lb of CO2, which is the major pollutant causing global warming. “In today’s fast paced business environment, there are expectations for speedy distribution of products and materials associated with businesses. But this demand for fast delivery comes at a cost to the environment. Transporting goods by air freight generates 0.57 kg CO2 equivalent per metric tonne of material for each kilometre travelled. The CO2 emission into the atmosphere significantly contributes to climate change. TNT recognises the risks of climate change on
the sustainability of its operations and the financial impact it could face in future,” explains Sanjiv Kathuria, Director – Sales & Marketing, TNT India. “Motor vehicles and equipment can exacerbate local air quality problems and may result in greenhouse gas emissions that contribute to global warming. TNT realises that it faces physical risks such as its reliance on key infrastructure sites, which could be closed due to adverse weather conditions. With respect to the supply chain, TNT is highly dependent on fuel and energy for running its operations, along with the risk of increasing prices for fossil fuel/energy sources,” he adds. Many logistics service providers worldwide and a few in India have started their own initiatives to ‘go green’. However, to drastically reduce the
effects of global warming, it is time for all individuals to contribute towards reducing emissions from their fleet. Commenting on the go green efforts, Vineet Agarwal, Executive Director, TCI, says, “The growing concerns for global warming is one of the biggest drivers behind the increasing environmental issues climbing high on the corporate agenda. This is also the reason why many companies across the globe have switched to green fleet and biofuels. The term ‘Green Fleet’ has been around for a while now, but like any change in thinking takes some time to get implemented, so is the case with the adoption of this concept.”
ADVANTAGES OF ALTERNATIVES Since the use of fossil fuels like gasoline and diesel are causing adverse effects on the environment and increasing the contribution towards global warming, Indian logistics service providers need to look at some alternatives. These alternative fleet options include biofuel, electric, hybrid and natural gas. Agarwal explains, “Biofuels are often considered as fuels that are more environmentally responsible as compared to oil and other fossil fuel products because these have numerous advantages in terms of ecological sustainability. Fleets using biofuels prove to be cost-effective in the long term. Once the technology is widely available, biofuels will become significantly less expensive than fossil fuels.” Sharing an experience of using alternative fuels, Kathuria says, “Alternatives have been used, but with varying degrees of success. TNT is among the first few logistics companies to embark on the mission to go green. TNT has its own special mission called ‘Code Orange’, which consists of mandatory programmes for improving CO2 efficiency – the key emission sources being operational vehicles, aircraft and buildings. Code Orange uses the best practices to continuously improve CO2 efficiency and drives innovative transport solutions.” He adds, “With regard to innovative transport solutions, electric vehicles are identified as a useful technology to minimise the carbon impact for pick-up and delivery operations in urban areas. We now operate 51 electric delivery trucks in the UK. Furthermore, pilot projects on the use of electric delivery trucks have started in China and the Netherlands, where a large vehicle fleet is operational.”
Environment Protection With Effective Fleet Management: • Use of CNG vehicles for in-city deliveries • Acquisition of fleet that is compatible and meets upgraded & evolving emission norms • Older trucks that are not fuel efficient are removed from the system • Conducting fuel quality checks for ensuring proper mileage and emission control • Disposal of lubricants, batteries, tyres and other materials, which contain lead and other toxic materials, to authorised recycling agents to prevent their unauthorised reuse, thereby ensuring controlled carbon emissions • Productivity management to ensure controlled carbon emissions • Utilisation of Railway services for bulk cargo movement. Inputs by Vineet Agarwal, Executive Director, TCI
Kathuria says that although electric vehicles are popular abroad, they have not gained enough ground in India due to the lack of adequate infrastructure. “TNT Biofuel (also called agrofuel) initiative is a global initiative, embarked on by countries like Germany, Netherlands and Australia. In India, a pilot project was launched to use biofuel for its delivery vehicles in 2007,” he says.
SUGGESTIVE MEASURES Taking that green initiative not only affirms a commitment to corporate citizenship, but also goes hand-in-hand with optimising efficiency and reducing costs. Stating a few tangible effects on the well being of the company using green fleet, LR Sridhar, MD, Sical Logistics points out the following: Cut operating costs: By improving efficiency, a greener fleet can significantly reduce lifecycle costs and vulnerability to volatile fuel prices. Reduce greenhouse gas emissions: As vehicles are a primary source of greenhouse gas pollution, fleets can
Adopting The Right Behaviour For Sustainability • Keep vehicle serviced as per manufacturer recommendation • Keep tyres properly inflated and check fortnightly • Remove excess load and obstructions like roof racks • Plan your journey or look for an alternative • Look ahead and avoid harsh braking • Do not idle for more than 30 seconds.
represent a large slice of a company’s total emissions. Implementing a green fleet programme is an immediate and meaningful way to reduce a company’s carbon footprint. Improve corporate reputation: With public concerns about climate change reaching an all time high, companies are now under immense pressure to set and achieve environmental goals. Green fleet management can provide measurable results – often within a few years – to report to employees, customers and shareholders. However, while explaining the benefits and uses of alternatives to achieve CO2 emission reduction, Kathuria gives a view of the challenges encountered in India. He avers, “The challenges in India are that biofuels are not widely available for consumer purchase and vehicles are also not designed to run on biofuel products. Thus, limited availability reduces the desirability of biofuels as alternative energy sources.” Therefore, the need of the hour is for the government and companies to find ways to make biofuels and other alternative types of energy available. Also, vehicle manufacturers should look at equipping their vehicles with the necessary technologies and materials to run them using alternative energy. Suggesting measures that can be taken while replacing fuels with the alternatives Sridhar explains that the use of alternative fuels is guided by context and availability. He states the following: • Diesel is the only practical fuel for heavy tonnage and large distance vehicles. Greenhouse gas emissions could be reduced by choosing new engines compliant with the latest norms. • Short-haul, low-to-medium tonnage
MARCH 2011 • SMART LOGISTICS • 41
Eco-friendly fleet, continued
TNT had launched an initiative called Planet Me in 2007. Its primary objective is to reduce the environmental impact of TNT’s operations and boost its financial performance by improving fuel efficiency. Since operating a fleet often accounts for a significant percentage of an organisation’s overall energy bill, improving its fuel efficiency can result in dramatic long-term energy savings. SANJIV KATHURIA, DIRECTOR – SALES & MARKETING, TNT INDIA trucks in a few urban centres, such as Delhi or Mumbai, could use compressed natural gas (CNG). • Company cars in metropolitan cities could switch to hybrids or dual fuel (petrol+CNG/LPG). • Biofuel is not currently popular in India. • Trains could use electrical power.
THE ENVIRON-PROFIT CONNECT A number of companies have shown the link between improved environmental performance and financial gains. Sridhar affirms, “Companies are looking to their supply chain and areas where operational improvements can result in profits. They can find cost savings by reducing the environmental impact of their business processes. By re-evaluating the company’s supply chain, from purchasing, planning and managing the use of materials to shipping and distributing final products, savings are often identified as a benefit of implementing green policies.” Discussing the effects, he says, “Despite the public’s focus on the environment, benefits attributed to reducing a company’s environmental impact are not a priority for supply chain professionals. Most executives seem to be still unaware that
improved environmental performance means lower waste disposal and training costs, fewer environmental-permitting fees and often, reduced materials costs.” Citing an example, he says that General Motors (GM) has reduced disposal costs by a few million dollars after establishing a reusable container programme with its suppliers. In an attempt to reduce costs in their supply chain, GM found that cost reductions complemented the company’s commitment to environment protection. Stating the steps taken by TNT, Kathuria says, “TNT had launched an initiative called Planet Me in 2007. Its primary objective is to reduce the environmental impact of TNT’s operations and boost its financial performance by improving fuel efficiency. Since operating a fleet often accounts for a significant percentage of an organisation’s overall energy bill, improving its fuel efficiency can result in dramatic long-term energy savings.” According to Agarwal, making fleet green is a challenge, but it is attainable. He says that in the current economic climate, taking the green initiative not only affirms a commitment to corporate responsibility, but also helps in optimising efficiency and reducing costs. “This will offer transport fleets more than just
Steps To Make Your Fleet Green • Conduct an inventory of the fleet, include the type of vehicle, number of each vehicle type and the type & quantity of fuel they use • Set realistic goals for reducing fuel use, criteria air pollutants and CO2 emissions for the fleet • There are many cost-effective and practical measures that can ‘green’ your fleet. Implemented wisely, these actions will not adversely impact the day-to-day operations of lthe ocal government. In fact, most actions will result in significant savings. The measures include: - Right-sized vehicle fleets by downsizing and eliminating vehicles - Optimising vehicle travel, operation and maintenance - Substituting other travel modes, or reducing the need to travel - Purchasing fuel-efficient, alternatively fueled and electric vehicles.
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an improved carbon footprint, and can lead to significant improvements in fleet productivity and efficiency. This will also reduce operational costs as well as carbon footprint of businesses,” he says. Stating the challenges and suggesting solutions for the go green initiative, he adds, “There is a need to spread awareness about green fleet among Indian companies. TCI is making its own contributions towards the protection of the environment & conservation of energy, use of renewable sources of energy (wind & solar), production of alternative source of energy and is working towards going green, which is reflected even in its building, architecture and the materials used.”
FINANCIAL, TAX AND MANUFACTURER INCENTIVES While logistics service providers need to gear up towards making their fleet green, the government also needs to contribute its share. According to Sridhar, the government is working towards the green initiatives and has come up with certain programmes, which are as follows: • Indian Railways has commissioned 350 locomotives that will use thirdphase technology. This technology helps regenerate 8-10 per cent of the power used by utilising the power used while braking, which helps to earn carbon credits. Some simple changes have resulted in huge energy savings, eg, a saving of 45 per cent of energy consumption occurs from the movement of double stack containers in some zones, and 20 per cent fuel savings by retrofitting diesel locomotives with energy-saving devices. • At the Integral Coach Factory in Tirunelveli, Tamil Nadu, a 10.5 MW windmill has been commissioned for harnessing wind power in the region and for manufacturing & maintaining trains. • On July 1, 2010, India introduced a nationwide carbon tax of ` 50 per metric tonne ($1.07/mt) of coal produced as well as imported to India. • India’s total coal production was estimated at 572 million tonne in the year ending March, 2010, with an import of about 100 million tonne. The carbon tax expects to raise ` 25 billion for financial year 2010-11. The clean
Measures To Ensure Green Fleet: • Using the smallest truck that can get the job done saves excess fuel that may be consumed by using a larger-sized vehicle • Encourage efficient driving habits like: - Less idling - Low speed - Correct loading - Correct use of transmission • Follow vehicle servicing and maintenance schedule • Comparative evaluation of vehicle fuel consumption (month on month; vehicle to vehicle). Inputs by Lt Col Vijay Nair, GM – Supply Chain, Hypercity Retail (India)
energy tax is expected to help finance a National Clean Energy Fund (NCEF). • While many remain apprehensive, carbon tax is a step towards helping Indian companies meet their voluntary target of reducing the amount of CO2 released per unit of GDP by 25 per cent by 2020, from the levels in 2005. Thus, with government support, logistics companies can look forward to a cleaner and greener future.
ENGAGING EMPLOYEES While a company concentrates on
maintaining and operating its fleet well, it is also important to engage employees in the process of going green. For example, training and educating the vehicle drivers will help them understand the usage and maintainance of vehicles better. Explaining the initiatives taken by TNT to engage its employees, Kathuria says, “TNT believes that educating and engaging employees to be environmentally aware, both at work and home, will exponentially increase the positive impact on the environment. A number of global and local initiatives were set up to inspire
and involve employees in Planet Me. The Drive Me challenge is open to all TNT drivers – both pick up/delivery and line haul worldwide. The programme is designed to increase fuel-efficient driving, reduce road traffic accidents and increase service to customers. It engages, recognises and rewards drivers through national and global driving competitions, pairing them with senior managers and members of the Board of Management, to win the title of TNT’s most fuel-efficient, safe and customer-oriented driver.” Such initiatives will ensure that the drivers are well trained & educated and put in their best to outperform each other, thereby benefiting the company and the environment.
GOOD FOR ALL! While the government is trying to issue environment-friendly policies in favour of the environment, companies adopting green fleet need to spread awareness about the same among others. This will ensure that the logistics fraternity plays its role of protecting the environment while improving efficiency and decreasing costs of the companies therein.
MARCH 2011 • SMART LOGISTICS • 43
INSIGHTS & OUTLOOK
Illustration By: Uttam Rane
As the world gets ready to curb carbon emissions and its harmful effects on the environment, the air cargo sector – a major contributor to these emissions – is taking initiatives towards carbon-neutral growth. While some initiatives have already been taken, more needs to be done to ensure that one of the fastest modes of transportation does not end up being one of the fastest modes of pollution. SUMEDHA MAHOREY ACCORDING to the International Air Transport Association (IATA), aviation is responsible for two per cent of global man-made CO2 emissions, while the transport segment covers 14 per cent of the global carbon emissions. Considering this, the airline/air cargo sector has established a comprehensive and ambitious framework to lower its greenhouse gas (GHG) emission levels in recent years. As per IATA, air cargo companies adopted a four-pillar strategy in 2007 which promotes and drives efforts in four key areas – improved technology, effective operations, efficient infrastructure and positive economic measures for the air cargo sector. In a landmark decision, in June 2009, the Board of Governors of IATA have set ambitious targets to
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mitigate GHG emissions from aviation. These targets include: • A cap on aviation CO2 emissions from 2020 (carbon-neutral growth) • An average improvement in fuel efficiency of 1.5 per cent per year from 2009 to 2020 • A reduction in CO2 emissions of 50 per cent by 2050, relative to 2005 levels. But the question remains as to how and by what means are air cargo companies planning to achieve these landmark targets? To achieve carbonneutral growth, a multi-faceted approach is required, with a strong commitment from all stakeholders of the air cargo sector – airlines, manufacturers, fuel suppliers, airports, air navigation service
providers and the government – the world over.
WHAT IT MEANS TO BE CARBON-NEUTRAL? At present, the air cargo sector is a $50-billion business that transports 35 per cent of the value of goods traded internationally. It is also a critical part of the airline business, which, as a whole, is the $490-billion heart of a value chain that supports 32 million jobs and $3.5 trillion of economic activity. As the demand for this fastest mode of transportation increases with the ever-increasing business activities, carbon emissions are also predicted to increase exponentially. Taking this critical factor into consideration, the air cargo sector
is taking rapid measures to curb carbon emissions. In this context, the aim set by IATA for the global cargo fraternity speaks about a future that is carbon neutral. Carbon-neutral growth means that net CO2 emissions will remain constant even as demand grows over the next decade.
efficient, cleaner and eco-friendly. These aircraft would replace the old aircraft that are not so fuel efficient. These measures will help Indian transport carriers in efficient transportation of cargo as well as reducing atmospheric emissions. The operators are also slowly beginning to adopt optimised route plan, which is helping them reduce their emissions.” However, Christoph Remund, CEO, DHL Global Forwarding, has a different viewpoint. He says, “With the media highlighting the need for carbon emission control measures, global mindsets have surely changed and multinational companies (MNCs) worldwide are taking huge strides in this field. In India, though this is in its infancy, awareness is on the rise and companies seem to be making attempts to reduce carbon emissions.” On the global front, companies like DHL have already set foot in the carbonneutral future. Under its GoGreen label, the company has set a clear-cut carbon efficiency goal. Remund avers, “We have business units worldwide focussing on fleet renewal, energy efficiency, new technologies, employee engagement as well as the involvement of our business partners and customers towards reducing our carbon footprint. Sustainability – with an emphasis on reducing carbon emissions – is already a central aspect of how we do business.”
REDUCING THE CARBON FOOTPRINT Carbon-neutral growth is a fundamental milepost towards a zero-carbon future
reduce the impact on the environment and the development & adoption of alternative fuels will play a positive role in protecting the environment and help build a better future for air cargo.” He adds, “Carbon emissions are based on various factors. Some of these include the availability of infrastructure, technology and the mode of transportation adopted. Mode of transportation here relates to aircraft that are currently being used by operators. Older aircraft are less efficient and cause more pollution, thereby harming the environment. Adoption of new aircraft and continuous breakthrough in engine technologies & design will lead to better aircraft with at least 50 per cent higher fuel-efficiency than that present today. Better infrastructure and the use of sophisticated software solutions will lead to improved and better air traffic management.” Some of the major initiatives that the sector needs to focus on have been highlighted by IATA. These measures include: • Fleet renewal: Airlines need to spend approximately $1.5 trillion on new aircraft procurement by 2020. This will result in a 21 per cent reduction in CO2 emissions compared to a scenario without fleet renewal. • Operations: Improved operational practices, including reduced auxiliary power unit usage, more efficient flight procedures and weight reduction measures, will achieve a three per cent reduction in emission by 2020. • Infrastructure: Full implementation of
AN INDIAN PERSPECTIVE The Indian air cargo sector has been witnessing numerous changes during the past few years due to robust economic growth leading to the development of world-class infrastructure, better and efficient air connectivity and high technological adoption across major airports in the country. These developments are marked with mindset changes in the way the sector has been functioning in the last decade. Krishnan Venkatram, Head – New Business Initiatives, Four Soft, says, “Various prestigious domestic and foreign carriers have shown an increasing interest in setting up and expanding their cargo operations in India. A strong focus is also being given to the procurement of new aircraft and engines that are highly fuel-
The future of the Indian cargo sector will be driven by competitiveness, adoption of sophisticated technologies, identification of areas in the existing system of cargo and express delivery handling. Along with improvements and changes in these areas, innovative methods are needed to offer improved air cargo services. KRISHNAN VENKATRAM, HEAD – NEW BUSINESS INITIATIVES, FOUR SOFT for the air cargo sector. By adopting certain policies, air cargo operations can be made more efficient. Highlighting the immediate measures that the air cargo sector needs to implement, Venkatram opines, “Addressing the issue of high pollutant label, investments in research & development, identification of ways to
more efficient air traffic management and airport infrastructure could provide an additional four per cent reduction in emission globally by 2020. • Engine retrofits & airframe technology: Modifications to the existing fleet using current technologies (winglets,
MARCH 2011 • SMART LOGISTICS • 45
Air cargo, continued
drag reduction, etc.) could achieve an additional one per cent reduction in emission by 2020. Technological innovation can deliver significant long-term improvements in airframes and engines. Radically new airframe and engine concepts could lead to a completely different technology development curve and may provide even greater emission-saving potential in the future. Sustainable solution to air transport can be developed on the lines of Solar Impulse, an aircraft that runs on solar energy to reduce the carbon footprint to zero. • Biofuels: According to The International Air Cargo Association (TIACA), modern jet aircraft use a
to transform biodiesel into biojet fuel is currently being evaluated for its performance properties. Other fuels such as hydrogen, natural gas, ethanol, methanol and propane have also been considered for alternative aviation fuels. All these represent significant challenges and would require new aircraft and fuel delivery systems. As per IATA figures, recent tests on biofuels have demonstrated that a reduction of 80 per cent of CO2 emissions, on a full carbon lifecycle basis, can be achieved. Assuming that six per cent mix of second-generation biofuels is available by 2020, the aviation CO2 emissions would further reduce by five per cent. IATA has set a target
With the media highlighting the need for carbon emission control measures, global mindsets have surely changed and multinational companies (MNCs) worldwide are taking huge strides in this field. In India, though this is in its infancy, awareness is on the rise and companies seem to be making attempts to reduce carbon emissions. CHRISTOPH REMUND, CEO, DHL GLOBAL FORWARDING petroleum-based fuel commonly referred to as ‘Jet A’ or ‘Jet A-1.’ Alternative fuel is fuel that is not derived from petroleum. These fuels are classified into three categories – synthetics, biofuels and others. Synthetic kerosene is made from coal, natural gas or other hydrocarbon resources. It can be tailored to incorporate the properties of petroleum kerosene, and thus can be thought of as a ‘drop-in’ replacement. Synthetic kerosene obtained from coal is currently approved for aviation use as a supplement to petroleumbased jet fuel and is anticipated to be approved for use as a total replacement. Synthetic fuel production is an energy-intensive process that, in the absence of proven methods to capture and sequester, produces significantly higher CO2 emissions than the production of petroleum-derived fuel. On the other hand, biofuels are made from the oils contained in crops/ feedstock to produce petroleum-like oil that can be transformed into fuel similar to diesel fuel (ie. biodiesel). An additional processing step needed
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to use 10 per cent alternative fuels by 2017. • Offset mechanisms: In order to ‘close the gap’, 90 MT of CO2 has to be offset by 2025 to mitigate emissions to 2020 levels and achieve carbonneutral growth. On similar lines, certain measures have been taken by companies towards lowering their carbon footprint. Sharing one such case study, Remund states that DHL Global Forwarding has partnered with one of the leading global IT companies to cut their CO2 emissions by a whopping 41 per cent. The initiatives taken to achieve this feet were: • Moving the switching centre to a different location within the country to avoid 4,000 km overland transport • Opening an additional switching centre to directly offload containers for local wholesalers without additional reloading • Using trucks with higher load capacity to reduce the total number of trucks.
TOWARDS A PROMISING YET CHALLENGING FUTURE With many such examples in the making
and more companies becoming aware of their responsibility towards the environment, Venkatram believes that the future of air cargo looks promising, but heavy investments need to be made for improving the infrastructure, fleet expansion, adoption of sophisticated technologies and implementation of international best practices. With research reports predicting that the Indian freight sector will grow at 10 per cent annually by 2014 and the air freight sector at 8.5 per cent in the next five years, all entities in this sector – airlines, manufacturers, fuel suppliers, airports, air navigation service providers, freight forwarders, etc. – need to fasten their seat belts and achieve the zero-carbon emission target collaboratively. Venkatram opines, “The future of the Indian cargo sector will be driven by competitiveness, adoption of sophisticated technologies, identification of areas in the existing system of cargo and express delivery handling. Along with improvements and changes in these areas, innovative methods are needed to offer improved air cargo services.”
ENSURING CLEANER & GREENER AIR TRANSPORTATION With the rising awareness of the adverse environmental effects of CO2 emissions, companies all over the world are trying to reduce the overall carbon footprint. The measures taken in this direction have lead to higher efficiencies in air logistics as well as global competitiveness. Commenting on India’s stand in the global market, Remund says, “India, after China, is steadily gaining momentum as an important contributor to the global logistics chain, in view of its strategic location on the globe as a key link between the East and the West. Its spiralling economic growth along with its large consumer base could well be the catalyst to drive the future of the air cargo sector as a key player.” At the global front, countries need to come together and account for emissions, collaboratively. It is essential that emissions be accounted for at a global level as a unilateral approach may result into overlapping of policy measures and result in further complexities. The air cargo sector should be held accountable for its emissions and every attempt to reduce the carbon footprint should be awarded with credits that act as benefit points for the company concerned.
INSIGHTS & OUTLOOK
ONE ‘Q’ MANY VIEWS
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ntal nme e o r i v g ch en allen n mu h is a ch n to i t l u kee t res whic es no f cargo, anies are ross the o d p cargo ort o com ouses ac ly helps ge of he transp logistics a r reh not on a o t rds. if , w es yt l o h d n t s i l e ich a anda d e s A l t h s i s m . e h w r l e s , i W dd na tiv an nt ge, it be a en’ initia gy efficie nternatio ge cities i nd dama eeds to r e r r a e l g h n e e in o siv a s wit n g g y ‘ n a n t i e y l r d a i p p m h o t t se o he ex m ice t t bec also co common uses are warehou es l t pract y are fas o h u e i h c r b h e su ar sa ve c tr nt coun vironme arehouse er, such w to set up mber of lumes, en ev rd dw e nu o vo the were ergy. How nnot affo eover, th e in carg . Hence, o p r Sola lot of en cities ca nts. Mor e increas missions ehicles e a d th ne n, v save owns an e investm ing with carbo pollutio n t s i g a l u l sma volves h o is incre increase creasing in g in e as it orting car ds to th blem of tored. d o p r a s oni tran in turn d to the p trictly m e l k cture an s h c u c a i r e t t h b s w to ld not have der shou are hich well as KA, w a in or g cargo i A , d S H n in in I e as HD he U ed carry ING ilable ies like t lities insid y-operat a S v a R r i s r E t y c e ic l nly n t t t a D f t u o n a IN Logis curre from co tics. The needs. B uses, use ide RAVtor, Vijay s e i s s t n l i t o c lear facili Dire s log ogica y ou areh ot to toward ith ecol in our w greener using l o a h e e, ne w war oach have cent and The en. We ndly appr o be in tu ouses. W 40 per rated ive h e e t d e e p r i r e r g d o f r a e ns y w e su nt go atter expe ors nme houses n used in have en b s o i r y i l l y v r u at e d re en not f machine se oper ect e wa eed to b ment an e d i r s a e t d th ed asp ou ent n ted equip . t use y-operat a result, her m t n ot p o e i s n u a m e is ip s er eq ter do n . A t u p s m A l a s q o e . e b r e d s v y a p r y r g e le o batte arehouse l handlin y becaus ll operato ollution on the r iscrepanc l a i d p a n r g our w he mate is is mai many sm to the cks plyin ace. This h d u f ,t T r pl d t o a o . l n s t i l A ch os is ich iese a h m k e d r r w t o n a , e run o yond th uipment tion is th ir paperw q e e b en he t l t d e a an ies but t te d a , i s d r e m o f nor imm . opt eeds emission ddressed n t a a h th t i y l gent ply w com to be ur s need A, RID istics Logis A P ti Log AR com cs servic NIH , Uniworld mitm e pr O CO ov en the f lak fo ts, pleas iders are i n r bei cargo ng h g their cu faced wit . ar h s cons Howeve idera r, if c sh on th tomers a the cha llen n b e o more d le en m viron panies u environm staying g ge of m e n v i r there men ent d reen e se ba onm ta . The eting th e t u ei y hav up lo is more g nt-friendl l relief. F tery-oper ring the e fac r y by urthe reen ated trans gistic e e r s r p v long d educ ry ar more ehicl ortat parks o in w e i , a lar ay in red , which und. Cur g the use wareho s, it wou on of us br ge ld re u worl r scale i cing env ing all ac ntly, big of paper es can b offer ironm d-cla t wil l e a t o i n com v g d itie ist l ss in e frastr not onl ental da s under ics comp ensuring y sav mage that uctur R JA anies one e . e G r ha o . If ener A Mana gy, b such pro of. This w ve set ger – NNAT u H Ope j ill go t e A c a ts ratio lso e N a ns, H , nable come u alido p on India n Ma rketin to h g ave
MARCH 2011 • SMART LOGISTICS • 49
VIEW FROM THE TOP
SUPPLY CHAIN EXPERT & ENTREPRENEUR
‘Speed and efficiency have become the mantra for moving forward’ “There is a need to encourage the adoption of new technology solutions rather than maintaining the old and tried practices of using more number of people and simple methods,” says Howard James-Scott, Supply Chain Expert & Entrepreneur, in an exclusive interview with Sudhir Muddana. Excerpts...
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WINNING MOVES TO CATER TO THE VAST EXPANSE
prepared to deal with this change.
Partnership is the main issue faced in the logistics industry today. There is a need for both, service providers and buyers, to be open & honest and to have a comprehensive & robust joint planning. This concept is relatively new to India, but it is an absolute must if outsourcing & joint logistics policy and forecasting are going to be the winning moves in the right direction.
LAST MILE LOGISTICS STRATEGIES
GOVERNMENT SUPPORT Speed and efficiency have become the mantra for moving forward. And to improve these, any organisation would expect the support of the authorities. Unfortunately, the logistics sector is still not recognised as a true business sector. As a result, we do not receive much support from the government to aggressively address several issues. But, this scenario is changing with the intervention of the Confederation of Indian Industry (CII) Logistics Council, which is helping the industry take things forward. Also, the implementation of the Goods and Services Tax (GST) is overdue. Once GST is implemented, we will see many new and innovative practices coming to the fore.
IMPACT OF GST IMPLEMENTATION We need to focus on performance on the roads as well as centralisation of the stock. Tied up working capital is a hindrance for any organisation, and thus makes inventory reduction important. Hence, only with a smoother and less onerous bureaucracy as well as organised paperwork, will we be able to increase our pace and improve the use of inventory. GST has all the tools available to make things function in a better way. However, I am uncertain of whether we have the artisans to wield the tools effectively and deliver the true potential of the new tax initiatives.
TAPPING THE GROWING MARKETS Multi Brand Retail (MBR) and the movement of food are two of the most dramatic changes in the country. The ready-to-eat market has now become stronger and continues to grow rapidly. This is fuelling the move towards different types of retail. As the income, lifestyle and standards of living of people continue to improve, the move towards MBR, and more so, towards ready-to-eat food preparations, will continue to grow. We need to be
Last mile is indeed becoming the ‘last mile’ and home delivery is fast becoming a common request. This is an area of expertise that India is seriously lacking in. In addition, the availability of ready-to-eat food and the purchasing power of people give us a whole new business sector to contend with. Interestingly, the single largest failure for home delivery is ‘client not in’. Clearly, it is more than the logistics that needs to be dealt with. We have to educate customers about the etiquette of receiving products at home. Linking this with cash on delivery (COD) certainly gives us a lot to deal with.
FACTORS TO ACHIEVE COST EFFICIENCY The following factors will help achieve overall cost efficiency in logistics: • Use the latest technology • Do not over promise or under deliver, as clients now have a vast array of service providers to choose from. • Operational costs are the most important issue to keep under control. A control on this will lead to success, while its abuse will lead to failure. • There is a huge difference between low cost and cost effectiveness, while selling or buying you have to understand the level of quality you seek and pay accordingly. • Ask about everything; confirm your understanding and that of your business partner before embarking on the job. Failure to do so can be risky.
maintaining the old and tried practices of using more number of people and simple methods. Performance and productivity will be the buzzwords in the coming years. This most likely means that industries will become more technology-oriented. In such a scenario, we can train people for other tasks that may come up later.
CUTTING-EDGE TECHNOLOGY SOLUTIONS The move to system as a software will help many new entries gain access to sophisticated technological solutions, which will eventually speed up the overall business. This, combined with new vehicles and load optimisation techniques such as palletisation, returnable equipment pool and the use of green technology for in-city distribution, will help innovate and boost efficiency as well as provide high-quality and cost-effective solutions.
A SUCCESS STORY... I recall a major MNC stating their intention to move towards an optimised post-GST solution early in 2009. They have stuck to their plan and are significantly advanced in their preparations to seize the initiative from most of their competitors in the near future. I believe that this advanced and balanced planning will enable them to overtake their competitors and significantly improve their bottom line. This long term aggressive planning, which was ably supported by an excellent capital expenditure initiative and their Board, has driven them to achieve an excellent starting position for the implementation and execution of the GST.
FACTORS TO LEVERAGE ON IDEAL SUPPLY CHAIN INFRASTRUCTURE Indian providers are looking forward to applying the GST flows and the methods to be adopted. The adoption of GST will offer companies the opportunity of moving into regional sites, which will bring in greater efficiency. Also, transport providers will benefit by having greater load optimisation. This will lead to multi-client collections and drops across the country, which is difficult to achieve under the current tax regime.
TECHNOLOGY, THE WAY AHEAD Although the automobile and retail industries are performing well in India, there is a need to encourage the adoption of new technology solutions rather than
Infrastructure continues to pose a problem, in specific areas like the ready-to-eat arena and the supporting businesses in this sector. Seizing the initiative in this area will help businesses in India perform well in the immediate as well as in the long term.
SECURITY SOLUTIONS The aspect of security has become crucial for service providers. Security, in the sense of stock integrity and shrinkage, has improved with the use of warehouse management system (WMS), which can easily track and trace stock. However, the problem of theft and appreciable breakages continues to be an impediment for the industry. With the physical security improving at sites and along roadways, this scenario has improved.
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TAX & LEGALITIES
ATTAINING SEAMLESS MOVEMENT OF GOODS As India gets ready to be the global logistics leader, smooth and seamless movement of goods becomes imperative. A vital component of business – customs & trade compliance – includes goods clearance from customs area as well as liability issues, documentation, and checking the latest customs policies & guidelines. Various factors complicate these procedures, and create a gap between the customs import & export procedures in the country. These impede the movement of goods & other risks, indicating that the Indian compliance system needs to be further strengthened for seamless flow of goods. THE Indian legal system and most codified laws in India trace their history to English laws. There is historical proof of imposition of import duty during the ancient and medieval era, the progress in levy of tax or duty on imports and exports, to its present form that originated in the 17th century when the British formed the first Board of Revenue in Kolkata. Thereafter, a number of laws were put in place to regulate customs duty, and it was in the year 1962 that the ‘Customs Act, 1962’ and the ‘Customs Tariff Act
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(CTA), 1975’ came into being. The term ‘duty’ as defined under the Customs Act of 1962 means a duty of customs leviable under this Act. In common terms, customs duty is a duty or tax that is levied by the Central Government on goods imported into or exported out of the boundaries of a country. As customs duty forms one of the most vital elements of the businesses in India, including logistics, and is also one of the significant sources of revenue,
the Indian Government has formulated the Foreign Trade Policy. This policy sets out the policies of the Government of India in relation to the development requirements of India’s foreign trade. This includes the import and export of goods. Moreover, it regularly issues notifications, board circulars, customs manuals, and public notices.
CUSTOMS LAW AND REGULATIONS IN INDIA The law relating to customs was formulated to regulate imports and exports, protect the Indian industry from dumping, and collect revenue of customs duty. The two main acts – which are the foundation of the Customs Law in India – include the Customs Act, 1962, and Customs Tariff Act, 1975. Customs Act, 1962: It is the basic act for levy and collection of customs duty in India. It contains various provisions relating to the import and export of goods and merchandise, as well as baggage of persons arriving in India. The main purpose of the Act is the prevention of illegal import and export of goods. The Act extends throughout the country. Customs Tariff Act, 1975: Customs duty is levied on goods imported or exported from India at the rates specified under this act. This Act contains the following schedules: • Schedule 1: It classifies and determines the rate of duties for imports • Schedule 2: It classifies and determines the rate of duties for exports. In addition, the CTA makes provisions for duties such as additional duty or Countervailing Duty (CVD), preferential duty, anti-dumping duty, and protective duties.
IMPORT AND EXPORT CLEARANCE PROCESS Under Indian law, the clearance process involves the following steps: i) Customs clearance on imported goods requires a checklist to be prepared to file the bill of entry (also known as shipment bill), through electronic data interchange (EDI). ii) After the bill of entry is assessed, it is sent to the Assistance Commissioner (AC) for approval. iii) This is followed by the release of the bill of entry and the duty payment bill being moved to the shed superintendent for goods registration. Thereafter, the marks & numbers – with respect to bill of entry and import goods – are verified. iv) The bill of entry is then sent to the shed superintendent for pass out approval. After this, the gate pass is released by the gate authority, and then the port authority releases the goods. v) The goods are then delivered to the consignee’s warehouse and an invoice, along with post-clearance documents, are handed
over to the consignee. Under the EDI system, declarations in the prescribed form need to be filed through the customs service centre. After verification, the shipping bill number is generated by the system, which is endorsed on and a printed checklist, generated for verification of data, is printed. Goods are inspected at the docks on the basis of the printed checklist. All documents are submitted to the customs officer along with the checklist. If goods and documents are found in order, the let export order (LEO) is issued.
OGISTICS COMPANIES HAVE TO DEAL WITH VARIOUS AGENCIES INVOLVED IN ANY CUSTOMS CLEARANCE WORK IN RELATION TO CARGO. PROCESSING AND FASTER CLEARANCES DEPEND ON VARIOUS AGENCIES WORKING AT AIRPORTS, PORTS, AND RAILS. ALSO, COMPANIES HAVE TO MANAGE MULTIPLE AGENCIES SUCH AS COMMERCE MINISTRY, DIRECTOR GENERAL OF FOREIGN TRADE (DGFT), AND RESERVE BANK OF INDIA (RBI).
CUSTOMS COMPLIANCE/ CLEARANCE Customs compliance is a wider term and does not just mean clearing of goods through a customs area. It includes the consideration of potential liability issues, documentation requirements, and a check on the latest customs policies & guidelines. Customs clearance is the procedure followed by customs authorities for proper examination, appraisal, assessment, and evaluation of goods, which are imported in India or exported from India
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Customs compliance, continued
ACT Customs clearance in India has, so far, been based on physical control, where each consignment is examined and assessed a duty – a legacy of the strict import control regime implemented with the purpose of protecting domestic industry. through sea, air, or land. This helps the customs authorities to charge proper tax and also check goods against illegal import. Customs clearance in India has, so far, been based on physical control, where each consignment is examined and assessed a duty – a legacy of the strict import control regime implemented with the purpose of protecting domestic industry. High import tariffs and a multiplicity of exemptions and export promotion schemes also contribute to complicating the documentation and procedures, resulting in a major gap between the customs import and export procedures at home and best international practices. The major problems associated with customs clearance procedures, with reference to international best practices, include the following: • Excessive documentation requirements • Lack of automation and Information Technology (IT) • Lack of transparency, unclear and unspecified import & export requirements • Inadequate procedures, especially a lack of audit-based controls and risk assessment techniques • Lack of modernisation and co-operation among other governmental agencies, which thwart efforts to deal effectively with increased trade flows • Procedures are transaction based. Every document has to be checked, double-checked, signed, and countersigned, and most import & export goods are physically examined, which breeds corruption • Documentary inspection of all export cargo is intensive, as compared to imports • In spite of digitisation, the administrative philosophy remains that of a paper-based system, with many opportunities for a face-to-face contact on routine matters.
SPEED BREAKERS Compliance at various levels: The Central Board of Excise & Customs (Board) is the apex body for customs matters. Decision making in the organisation is based on decentralisation, which is to say that there is a definite delegation of authority and responsibility to different levels of the organisation. Each department may issue its own notifications and circulars. The board discharges the various tasks assigned to it, with the help of its field organisations, namely, the Customs, Customs (Preventive) and Central Excise zones, Commissionerate of Customs, Customs (Preventive), Central Revenues Control Laboratory and Directorates. Also, there are 23 zones of Central Excise & Customs, 11 zones of Customs & Customs (Preventive) spread across the country. Logistics companies are required to comply with various authorities and prepare documentation at each level of the regulatory chain. Moreover, as the goods cross one region to another, logistics companies are required to comply with applicable local laws, procedural requirements, and paperwork at
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each regional level. They also have to efficiently deal with huge paperwork and compliance with multiple agencies. Compliance with multiple agencies and acts: Apart from the Customs and Excise Board, approval of and compliance with several other allied agencies is required for clearance of goods from the customs frontiers of India. Logistics companies have to deal with various agencies involved in any customs clearance work in relation to cargo. Processing and faster clearances depend on various agencies working at airports, ports, and rails. Also, companies have to manage multiple agencies such as Commerce Ministry, Director General of Foreign Trade (DGFT), and Reserve Bank of India (RBI). Moreover, there are approximately 40-45 allied acts that are implemented by the customs officers, some of which include: • The Central Board of Revenue Act, 1962 • Foreign Trade (Development & Regulation) Act, 1992 • The Foreign Exchange Management Act, 1999 • The Trade and Merchandise Marks Act, 1958 • The Territorial Waters (Continental Shelf & Exclusive Economic Zones) Act, 1976 • The Provisional Collection of Taxes Act, 1931 • The Export (Quality Control & Inspection) Act, 1963 Interpretation of rules & regulations left to the discretion of customs commissioner: Often, disputes have been observed to arise in the matter of classification and valuation of goods. Determination of value of goods is required for levying customs duties (ad valorem duties) as per provisions laid down under Section 14 of the Customs Act and the Customs Valuation (determination of prices of imports goods) Rules, 1988. These provisions are essentially adoption of General Agreement on Tariffs and Trade (GATT)-based valuation system and followed internationally [now termed World Trade Organization (WTO) Valuation Agreement] and were incorporated in the law in 1988. The importer/logistics company as well as the assessing officer have to carefully study and apply these provisions so that proper valuation and classification as per the law are applied before the goods move out of customs control. Bureaucratic hurdles: Logistics companies are required to interact with officials of the customs department at various levels, for clearance of cargo at ports, air cargo complexes, etc. Clearance of goods is often time-consuming and cumbersome, due to procedural requirements of coordinating and contacting customs officials for completing paperwork and goods clearance. Multiple taxation: Central, state & local taxes, duties & levies increase costs of transportation of goods. For example, Octroi Duty is still applicable in Pune and Mumbai, which increases the costs of transportation.
REGULARISING TRADE ROUTES Customs and trade compliance is an essential segment of the global supply chain. In order to facilitate smooth movement of goods & eliminate risk, companies must create strong compliance teams and comprehensive checklists to stay on the right side of the law. To ensure full compliance with complex and changing customs requirements, companies should take a holistic approach. Having a sound, efficient and effective customs compliance review programme in place will certainly pay dividends. Courtesy: Solomon & Co
FLEET MANAGEMENT SERVICE PROVIDER TRANSPORTATION MANAGEMENT
With the Indian logistics industry flourishing, several fleet management companies are mushrooming all around. However, not all companies can provide the same scale of services at equal costs. Thus, there are a number of aspects to consider while selecting the right service provider to avoid delays and losses as well as maximise efficiency. SUDHIR MUDDANA WITH globalisation and increasing competition, companies today are constantly looking for ways to cut costs while providing services with optimal efficiency. Among all operations taking place in the supply chain, transportation contributes the highest to the total cost involved in logistics. Maintaining the fleet of vehicles, which constitutes a large part of the company’s asset base, and running the fleet can also be quite costly. Therefore, it is important to choose the right service provider for one’s fleet to not only cut down on costs, but also enhance efficiency.
CHOOSING A CAPABLE SERVICE PROVIDER Selecting a fleet service provider that best fits a company’s requirements and product volumes can be quite a task, albeit, a crucial one. One must ensure that the fleet management company has the required capacity, in terms of number and types of vehicles, to handle the volume and the shipping loads of the business. A small fleet
provider may not be able to handle more than a certain number of shipments per month. And if a company’s requirement exceeds that number, then the business will suffer. This can result in major delays, which will eventually increase the logistics costs and also decrease customer reliability and satisfaction.
PROXIMITY TO PICKUP POINTS It is best to opt for a fleet management company that is located near the pickup point. This will ensure that the company will prioritise the availability of the truck rather than wait until an empty truck is available in that area to serve the client. Also, if the company has to travel a significant distance to pick up the load, it will reflect in the prices of products. However, a fleet company located near the pickup point is more likely to ensure that the delivery reaches faster and without any additional costs.
WELL MAINTAINED VEHICLES Product damage can incur huge losses for
a company. Therefore, while partnering with a fleet management company, it is important to first check the condition of the vehicles that would be used to transport the goods to ensure that the vehicles are reliable. Avoiding this step can result in breakdowns and loss of time due to repairs, thereby downsizing the company’s productivity and revenues. Also, it is important to ensure that the vehicle is able to withstand road conditions so that it does not have any adverse effect on the goods during transit.
QUALIFIED STAFF Often, the person in charge of the transportation of goods may not be present to answer queries or handle shipping instructions for the product, which may hamper or stall the timely transportation of one’s products to the destination. To avoid the occurrence of such a scenario, it is essential that the fleet management company that one is partnering with has skilled and knowledgeable staff.
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Fleet management service provider, continued
Using technology to track vehicles Vehicle tracking is one of the most important aspects of fleet management. Technological advancements have helped develop systems to track actual vehicle location, fuel economy, average speed and estimated time of arrival. The use of technology helps the company know which employee has the vehicle, when and, sometimes, even why. Technology ensures that a vehicle is available when an employee needs it. In addition, companies can also use the Global Positioning System (GPS) technology, which can track vehicles in a fleet via satellite and can make information available to company supervisors in real time.
BUILDING ON TECHNOLOGY Today, the use of state-of-the-art and appropriate technology is considered to be one of the most important factors for the success of any business. The same logic applies to the logistics industry, which needs technology to help it manage the processes in the supply chain in a much better and accurate manner. Businesses are growing by the hour and a company needs large fleets of vehicles to transport the goods. Maintaining such a large fleet manually can be cumbersome. Therefore, companies need to install software, which will help them track the progress, plan logistics, maintenance schedules & other basic fleet necessities and stay connected with drivers. Therefore, with advancements in technology, and its prime use in fleet management, it is essential that one understands the technology being used by the fleet management partner. This will help avoid hurdles and ensure timely transportation of goods.
MARKET REPUTATION COUNTS In most businesses, a company, before partnering with another, checks its balance sheets and other credentials. Similarly, in the logistics industry, in order to ensure if a fleet management company is reliable, it is essential for a company to get a general feedback about the experience and financial ability that the fleet management company possesses. But this does not necessarily mean that one has to partner with a big branded company. While popularity is not a reason to disqualify a company, it can be a reason to carefully consider the decision. Large companies may not offer the best rates or service. Therefore, while selecting a company, it is vital to research thoroughly about the fleet management company before taking a final call.
TOWARDS EFFICIENT TRANSPORTATION Keeping these factors in mind while selecting a fleet management partner will help in not only cutting down on costs but also ensuring optimal efficiency during transportation. With constantly increasing competition, it may so happen that smaller and independent companies offer the best of services at the lowest possible costs. In addition, smaller fleet management companies are more likely to develop a personal relationship with the client that can develop into better care of one’s shipment and attention to one’s needs.
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Statement about ownership and other particulars about Smart Logistics, as required to be published in the first issue every year after the last day of February. 1.
Place of Publication: Ruby House, ‘A’ Wing, JK Sawant Marg, Dadar (W), Mumbai-400028.
Periodicity of Publication: Monthly
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Editor’s Name: Mr. Lakshmi Narasimhan Nationality: Indian Address: Infomedia 18 Ltd, Ruby House, ‘A’ Wing, JK Sawant Marg, Dadar (W), Mumbai-400028.
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Details of the shareholders of Infomedia 18 Limited who are holding more than 1% of the paid up equity share capital of the company as on 11-02-2011: a.
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I, Lakshmi Narasimhan, hereby declare that all particulars given above are true to the best of my knowledge and belief. Dated: 23rd February 2011 Sd/LAKSHMI NARASIMHAN Signature of the publisher
Illustration By: Sanjay Dalvi
LEAN PRINCIPLES SUPPLY CHAIN MANAGEMENT
Extending the concept of ‘lean’ to the supply chain can result in dramatic financial improvements. Unlike conventional strategies, lean focusses on obtaining the highest throughput by using the least inventory and providing multiple benefits. Manufacturers thus need to build a cross-functional team to profitably build a lean supply chain network to synchronise their manufacturing operations with customer demand and produce quality products. THE mission for ‘lean and mean’ continues since 1950s. In this continuous evolving journey, it has followed the Japanese model embracing methodologies such as Total Quality Management (TQM), Kaizen, Just-in-Time (JIT) Inventory, Six Sigma, to name a few. However, the ‘lean machine’ in any factory may not necessarily satisfy the customers’ desires ie., value for money, quality of products & services, responsiveness of the suppliers and support from cradle to grave. So, what is being demanded of world-class companies in the 21st century is a delicate balance of being efficient (lean), responding rapidly to changing customer needs & market forces (agile) and producing quality products from quality processes (Six Sigma). The adoption of lean, agile and Six
Sigma concepts is generally focussed on the shop floor, but this is only the tip of the value iceberg. To reveal the hidden, but massive, value potential, it is imperative that these methodologies are extended beyond the manufacturing plant to include all critical processes within and between each stage of the supply chain network – exporter, importer, ports, freight forwarder, vendor, manufacturer, distributor, retailer and customer.
EXTENDING LEAN PRINCIPLES Extending lean manufacturing principles to the supply chain is of extreme importance. However, the extension of lean concepts across a complex supply chain network of suppliers, customers and partners can result in dramatic financial improvements
for all. Significant benefits in reduced cycle times, increased production yields and quality levels, decreased inventories, minimised waste, lowered costs and increased customer satisfaction are to be expected, which, in turn, drive increased revenue and improved operating margins. Lean supply chain operations require continual optimisation, monitoring and refinement, which cannot be accomplished without a solid IT platform. As backbones and data repositories, traditional solutions such as enterprise and supply chain planning applications can be essential for enabling a holistic and lean manufacturing operation. However, many lean purists hold that traditional IT applications such as ERP, by definition are anti-lean, using push logic to populate the manufacturing
MARCH 2011 • SMART LOGISTICS • 57
Lean practices, continued
operation with materials, rather than pulling actual customer demanddriven inventories to create a continuous flow environment. Using standard costing and least total cost logic will often drive decisions that prove to be counterproductive if the impact of the total supply chain is not considered.
cannot be supported by customers, suppliers and partners • ERP and legacy systems struggle with managing continuous demand variability or sudden spikes in demand.
ADDRESSING CURRENT BUSINESS TRENDS
Increasing Demand of Logistics Service Providers (LSPs): Another trend in SCM is outsourcing of key operations to the From being sole owners of all ‘experts’. More companies are relying components of the supply chain, on LSPs to meet business challenges. companies have evolved their business Some companies deploy LSPs to processes and solutions to become increase their presence in key emerging interactive global trading partners in markets. Others focus on their core a near real-time environment. Fuel strengths and outsource other areas costs are at an all-time high, which, in such as distribution and transportation turn, affect transportation costs. The to LSPs, while some outsource IT in impact of global sourcing amplifies order to focus key resources in crucial Figure 1: The “Iceberg Effect” leveraging lean and agile concepts beyond manufacturing these costs and must ultimately be areas within the business. In an effort their entire supply chains to respond in absorbed by someone in the supply chain to work more closely with trading partners, a synchronised manner to variability in – including, mostly, the end consumer. As LSPs look to share vital information such customer demand. This means production a result, driving lean efficiencies on a global as inventory levels and order status to is centred on making products to forecast basis becomes more important. Profitably provide customers with greater visibility and then push high levels of inventory building a lean supply chain network into their assets and initiatives. Utilising into the supply chain to manage variability. requires that manufacturing operations a service-oriented architecture for SCM Eventually, these companies need pricing synchronise with customer demand and solutions makes this possible. Looking at today’s supply chain discounts or promotional campaigns produce acceptable quality products as leaders, it is evident that these companies to create demand or they will face needed. A manufacturing strategy based on have embraced an inter-enterprise model substantial write-offs. These write-offs reduced variability, production to demand, where they rely on trading partners to come at a more rapid rate due to the waste elimination and optimal cycle time share mission-critical information to more faster introduction of new and competing will drive overall supply chain success. effectively run their supply chains. With the products. Beyond the production system, LEAN CONCEPTS IN SCM popularity of offshore manufacturing and real-time demand information coupled Studies have estimated that the benefits outsourcing of key logistics components, with real-time inventory visibility and of extending the lean methodologies and it has become imperative for companies availability for production is the biggest techniques throughout an interdependent to adopt an inter-enterprise mindset hurdle to lean. Silos of efforts on areas supply chain network could be multiplicative, versus a more discrete model in which such as asset utilisation, production relative to the benefits derived from a each node in the supply chain acts alone. efficiencies and cost cutting have led to single enterprise deploying the same tools Focussing on improving lean only incremental unsustained benefits. solely at the shop floor level. Meeting methodologies and practices through Solutions are needed to manage and the requirements of customer-driven technology can result in enhanced optimise the changes in customer demand demand with its implied uncertainty and supply chain network communication to execute the transaction in the most variability through interdependent supply and collaboration among its participants. effective way for the enterprise as a networks is not a small undertaking Lean enablers in the form of software whole. Leading manufacturers will need and will take time, especially for the applications, in conjunction with best interdependent supply networks, which cultural aspects of the required change practices, and continuous monitoring, combine back-end business planning in mindset. Companies must start now optimising & adjusting, will make lean and operations in conjunction with lean by building a cross-functional team to stick. methodology and practices across the define their manufacturing and supply The extension of such a process to supply chain. Traditional pull systems such chain network strategy, and designing a suppliers aids in the following: as legacy and ERP fall short when applied roadmap for deployment of applications • Purchasing savings grow through using to a networked supply chain model for that incrementally build manufacturing & the following reasons: best category contracts by buyer or • Lack of visibility across the entire supply chain efficiency, quality and agility. supplier to increase leverage. network • Automation of procedures cuts • Rigid, slower and error-prone ERP LEAN, AGILE & SIX SIGMA transaction costs and elimination of COMBO systems errors cuts reconciliation time and Traditionally, manufacturers have not built • Legacy systems that are unscalable and cost.
PARTNERING WITH SUPPLIERS
58 • SMART LOGISTICS • MARCH 2011
The advantages of lean manufacturing combined with Six Sigma techniques throughout the supply chain deliver: • Real-time supply chain communication and coordination • Real-time transportation information • Inventory reduction through demand-based replenishment • Reduction of waste internally and externally • Improved demand signal management across the entire network • Focus on creating pull material flow across the entire supply chain. Technology Advancements: Although service-oriented architecture has been discussed for years, its fruition is visible as applications are being built on this premise of creating shared business objects to leverage data between trading partners. Today’s technologies allow the creation of a virtual company to share data and work together to service the same need versus working independently. With newer technologies such as radio-frequency identification (RFID), sense and respond, mobile computing and service-oriented and event-based architecture, accessibility to information is greatly enhanced. More accurate, timely information allows us to make proactive decisions to ultimately meet customer needs and drive efficiencies throughout the supply chain. These technologies permeate all supply chain activities and provide value across nodes. These facts should be considered by companies when determining how a solution aligns with their IT landscape on the basis of operating systems, application servers, integration capabilities and database platforms. By combining such technologies, companies can make prudent lean business and technical decisions based on current Six Sigma objectives and future strategic direction.
LEAN SYSTEM CHARACTERISTICS Lean enterprises are always looking for ways to cut the use of any of the unwanted resources in the firm. Tools to enable the same include: Pull Model The pull principle of production planning begins with the last link in the supply chain – the final customer of the product or service. By using such a business process platform to transmit point-ofsale transactions and orders down the supply chain, member firms can keep their production in line with final demand, thus reducing inventories in the supply chain and avoiding the ‘bullwhip effect’. This
process makes it feasible to link the entire supply chain into one long pull pipeline. Inventory Reduction A key principle of lean is reducing inventories to the bare minimum. This effort helps identify waste and inefficiencies in the supply chain. A business process platform is useful in this endeavour as it coordinates with the supply chain such that each participant produces only what is already in use at the next stage and not what they expect to use. The result is smaller lot sizes and frequent deliveries, and hence, lower inventory. Quick Setups and Orders Reduction in inventory leads to mass customisation of a service or a product, as the supply chain becomes shorter and faster. For delivering mass customisation of a service or product, the supply chain must be very fast and responsive. This requires quick set-ups for production and rapid turnaround on orders to suppliers. As lot and order sizes come down due to the closer coordination of production schedules, companies will be forced to develop faster and more efficient ways of setting up runs of products and order delivery to customers. By allowing closer coordination of production schedules and faster adjustment to changes in demand, a business process platform facilitates information transmittal internally within the company and externally throughout the supply chain. This process also facilitates the ongoing trend of outsourcing and manages closer cooperation & information sharing among supply chain participants. Supplier Networks Supply chains are becoming more closely linked where the lines blur between separate corporate entities (ie, the virtual supply chain). The tremendous amount of information transmittal and cooperation through a business process platform allows companies to link more closely with their supply chain partners. Supplier partnerships are another important feature of effective lean systems.
A business process platform alone cannot create these partnerships. Trust and experience are also required, but it is more practical to link with suppliers in production scheduling, inventory control, quality improvement and new product development.
KEY ASPECTS OF AGILE & LEAN Highlighted are the prerequisite characteristics of the lean and agile paradigms. These can be regarded as essential, desirable or indifferent for a given supply chain strategy to be successfully implemented. Use of Market Knowledge All businesses in any supply chain must focus on the end user and both paradigms emphasise this point. The nature of the end-user or market sector as a whole will have a direct impact on which paradigm will be the most apt for any supply chain or part of a supply chain. If market knowledge is not exploited and the supply chain is to be made more responsive, then the members run the risk of producing too wide a variety of products at short notice when there is insufficient demand to justify the extra cost. Lead Time Compression In recent times, lead time compression has become a major order winner. Leanness calls for the elimination of all waste or in lean terminology, ‘muda’. Therefore, time compression is essential for lean manufacturing. Likewise, agile manufacturing requires a responsive supply chain. This also calls for lead time compression in terms of information flow as well as material flow. Eliminate Muda Lean manufacturing is called lean as it uses less or minimum of everything required to produce a product or perform a service. Leanness achieves this by eliminating all non-value adding processes. In a pure lean supply chain, there would be no slack and zero inventory. It would be very impressive, although not realistic, if zero inventory throughout a total supply chain, was achieved. However, the focus on eliminating muda throughout the supply chain is indeed critical to improve the efficiency of the supply chain. Robustness An agile supply chain must be able to withstand variations & disturbances and indeed must be in a position to take advantage of these fluctuations to maximise profits.
MARCH 2011 • SMART LOGISTICS • 61
Lean practices, continued
Smooth Demand/Level Scheduling An effective lean environment avoids the requirement for robustness by calling for demand to be stable through the use of market knowledge, information and forward planning. Lean supply chains, by their very nature, tend to reduce demand variation by simplifying, optimising and streamlining the supply chain. However, if the end-user demand is beyond the control of the supply chain, it will not be possible to implement lean principles at the interface with the end-user. Sudden variations in demand would lead to waste either in not producing near capacity or needing to keep larger buffer stocks.
SUPPLY CHAIN STRATEGIES Here are the most commonly used supply chain strategies: Buy to Order (BTO) BTO is an appropriate supply chain strategy if all the products are unique and do not contain the same raw materials, where the end-user is prepared to accept long lead times and the demand for products is highly variable. If the supply chain held any stock, it would run the risk of them becoming obsolete. If a particular product did not succeed in the marketplace, then this supply chain would not have any exposure to the costs of overstocking. However, the supply chain would not be able to take advantage of new markets quickly. Make to Order (MTO) With an MTO structure, a supply chain is able to change to different products as long as they are made from the same raw materials. It will also cope with varied locations, volumes and product mixes. The lead time will be reduced but the end-users might still have to wait to get the product they desire. The demand for the product can be variable and with a high level of customisation, both in terms of number of different combinations and the amount of the basic model that will need to be customised. An MTO structure is exposed to the risk of holding raw materials and components in stock. Assemble to Order (ATO) The ATO supply chain will be able to respond to a varied product mix from within a range of products, whether customised or not. The lead time will be reduced considerably and will depend on where in the supply chain the final assembly takes place. This slightly increases the risk of overstock or understock but
62 • SMART LOGISTICS • MARCH 2011
Getting Started • Evaluate each supply chain process with regard to applicability of lean concepts, both enterprise and cross-enterprise. Transportation and procurement are generally good starting points. • Include major suppliers, customers and partners as lean concepts move from enterprise to extraprise. • Partner with IT vendors to deliver and sustain value. • Consider new supply network while deploying lean concepts. • Build mutually beneficial relationships with partners to share information and synchronise planning activities driven by customer demand characterised by pull demand concepts. • Build the correct supply network, including the supply side component, to prevent stock out, excess stock buffers and replenish on demand. • Strive for agile, same day manufacturing execution capabilities with minimal variability in order to meet real customer demand. the products will not be of the same value as the assembled product. Thus, the supply chain is protected against the full risk of obsolescence. Conversely, the supply chain will be in a better position to take advantage of a product ascending the growth stage of its lifecycle. Make to Stock (MTS)/Ship to Stock (STS) Both MTS and STS supply chain strategies represent cases where a standard product is provided from a defined range. The MTS strategy means that the supply chain can cope with demand in varied locations but calls for a steady overall demand of a standard product. The STS strategy provides a standard product in fixed locations. The members of the supply chain must be able to forecast demand accurately if they adopt these two strategies. It is critical that they are aware of the accuracy of their forecasts and accordingly hold the correct level of stock to minimise the risk of stockouts and overstocks.
WHERE REAL VALUE IS FOUND Lean supply chain projects take time and as companies grow, challenges must be overcome. However, several components of an extended lean enterprise can add significant value in relatively short periods of time. For this, companies need tightly integrated and highly functional solutions that can manage and execute long-running, event-driven business processes across the enterprise. In this regard, SCM solutions enable functional business process capabilities and serviceoriented architecture to provide a business processing platform to deliver
that functionality. A combination of SCM solutions and a business process platform can reap various benefits such as: Tactical Benefits: The implementation of SCM solutions allows gaining efficiencies across discrete supply chain processes such as warehousing, supplier & manufacturing plants and logistics & transportation operations. Benefits include increasing overall labour productivity and order accuracy while decreasing inventory and labour costs throughout the supply chain. Innovative Opportunities: SCM solutions allow companies to realise new opportunities that may not have been previously achievable. Initiatives may include direct store delivery programmes, shared services, multi-channel distribution or migrating from a prepaid to a collect model for transportation to drive down transportation costs. Evolutionary Initiatives: In today’s environment where customers demand better, faster and cheaper products & services, companies must look for ways to streamline business processes and focus on core competencies to drive customer value. This may also mean outsourcing initiatives or offshoring manufacturing activities. Looking at such prospects, manufacturers must start now by building a cross-functional team to define their manufacturing and supply chain network strategy, and designing a roadmap for deployment of supply chain planning and supply chain execution applications that incrementally build manufacturing and supply chain agility. Courtesy: Manhattan Associates
Image Courtesy: LANXESS India Thane.
DISTRIBUTION CENTRE MANAGEMENT WAREHOUSING & DC
11 K Y QUESTIONS To Ask When Adding a DISTRIBUTION CENTRE Expansion of business necessitates adding more distribution centres. But, before setting up a distribution centre, several factors are to be considered, including re-evaluation of the supply chain network of the existing business. It is thus essential for businesses to address all the pertinent issues before taking the leap to ensure overall effectiveness of the project.
MARCH 2011 • SMART LOGISTICS • 63
Distribution centre management, continued
THE need to expand after outgrowing one’s distribution capacity may not be as simple as applying one’s successes from previous distribution centres (DCs) to the new one. Taking a step back and re-evaluating the supply chain network and its associated distribution processes more holistically will bring in greater rewards. Many companies set up a new DC as per their existing DCs. However, the requirements that are driving the need to add capacity to one’s network might dictate a different strategy. For example, one might want to set up new rules to assign customer orders to different facilities based on new stock-keeping unit (SKU) characteristics, product groups, transportation modes, customer locations and/or inventory availability. Multi-site distribution environments can be complex. The following questions will help in considering issues that should be addressed while expanding the distribution network.
DO SUPPLY POINTS NEED TO BE CHANGED TO SERVICE THE NEW DC?
This is the time to reconsider one’s vendors. Are there new vendors that can provide the same quality products and service, but are located closer to the new facility to reduce transportation costs and transit time? This needs to be considered in all cases, ranging from new ports of entry for international supply or potential freight consolidation locations for domestic supply. Vendor compliance can also be a factor, with different rules of engagement possible in a multi-facility distribution network versus a single-facility network.
WHAT WILL BE THE INVENTORY STRATEGY AND DEPLOYMENT RULES?
The strategic plan that led to the deployment of a new DC should provide directional guidance around inventory strategy and deployment, but the details must be addressed during facility design. Here, it is important to focus on the requirements for storage and throughput capacity, as well as other upstream and downstream requirements. For example: • Types of SKUs that will be handled at each location (break pack, full case, ship-alone large items, hazardous materials, temperature-controlled) • Slow-moving SKUs in single or
64 • SMART LOGISTICS • MARCH 2011
multiple locations • Core versus seasonal product deployment • Channel service requirements (direct, retail, wholesale, multi-channel).
HOW WILL PRODUCT FLOW FROM THE SUPPLY POINTS TO MULTIPLE DCs?
The strategic plan of a business should provide high-level guidance on this question. But while considering the implementation of a new distribution location, more detailed analysis by product type and vendor need to be conducted. The issues to consider include: • Break bulk/freight consolidation centres at ports to deconsolidate or consolidate shipments from overseas or heavy areas of domestic supply • Cross-dock capabilities at the new and existing facilities to allow for deconsolidation/transfer operations for efficiency • Bypassing internal distribution altogether and ship some products
directly to pool locations, stores or end-customer locations.
BASED ON INVENTORY STRATEGY AND FACILITY LOCATIONS, HOW SHOULD THE MERCHANDISING, PROCUREMENT AND PLANNING FUNCTIONS OPERATE?
A new DC may significantly impact the merchandising and procurement functions of a business. For example, what are the requirements for multiple-destination purchase orders? And what are the ‘optimal’ SKU ordering characteristics (style/colour assortments, prepacks, case quantities, etc)? Other considerations include order frequency and quantity requirements, as well as adjustment of order lead times to account for landing product supply at multiple destinations.
HOW WILL INBOUND TRANSPORTATION REQUIREMENTS CHANGE?
CASE STUDY Trigger: With the acquisitiong of CSK Automotive, O’Reilly Auto Parts wanted to merge the distribution operations of both the companies. The O’Reilly team developed a masterplan to focus on market growth, mode of supply chain support and strategy for finding a middle ground between retail and wholesale business requirements. A major element in this acquisition was to better utilise inventory, real estate, DC, labour and transportation, while improving service levels to the stores and their customers. Solution: O’Reilly called on Fortna’s help to shift into overdrive. Merging the O’Reilly and CSK supply chains quickly required a partner with the breadth and depth to handle the following: • Increased SKU count and improved inventory mix • Strategically placed distribution centres • Highly integrated computer systems • Organisational changes • Modified transportation/product distribution to support O’Reilly’s daily delivery model • Real estate. Result: Seven additional facilities were integrated into a distribution network in two years that now serves over 3,500 stores with 1,20,000 SKUs. Commenting on the successful partnership, Greg Johnson, SVP – Distribution Operations, O’Reilly Auto Parts, avers, “Given the magnitude of this project and its importance to our customers and investors, we knew Fortna was the partner we wanted. They have the talent, the tools and the commitment to deliver on their promises.”
between distribution facilities, it is important to understand its impact on vendor order minimums, freight costs and service levels. A set of rules must be established for each vendor as part of the systematic management of these requirements. If a core carrier programme is in place, it must be determined whether it provides the same benefit to the future distribution network as it does to the existing one. Also, new carriers for the lanes transporting products into the new facility may have to be engaged.
HOW WILL INVENTORY ALLOCATION BETWEEN FACILITIES BE MANAGED AT A TACTICAL LEVEL?
Allocation timing is a key consideration in a multi-site distribution operation. In most cases, one will want to delay inbound inventory allocation for as long as possible. However, the timing of product ownership, inventory visibility and systems must all be considered.
WHAT ARE THE SYSTEM REQUIREMENTS NECESSARY TO SUPPORT MULTISITE TRANSPORTATION, MERCHANDISING, PURCHASING AND ALLOCATION DEMANDS? Another point to consider when adding new DC is the impact on the systems that manage the product and information flow from buyers and vendors. Inventory management systems, planning and allocation systems as well as purchasing systems have to be modified, or in some instances, replaced. The key here is a distributed order management (DOM) system that allows effective management of multi-site distribution and allocation requirements. Similarly, a transportation management system (TMS) provides visibility to the flow of inbound product from vendors to multiple facilities.
or for certain demand channels will be carried in one facility, while others carry the full line of SKUs. Whatever is the rationalisation for the SKUs carried in a new facility, the decision will impact the equipment, facility, operations, systems and people requirements.
as it has real-time integration with key business systems, and provides real-time order status and visibility. Companies that primarily support wholesale and retail distribution channels may also need a TMS to support new multi-site transportation requirements.
HOW WILL CUSTOMER ORDERS BE FULFILLED?
Requirements for different order types will dictate the design of the new facility. Carton picks, pallet picks, broken case picks and ship-alones all have design considerations that must be understood. Another item of significance in customer order fulfillment relates to how multi-line orders are completed when the entire order cannot be filled from one DC with the in-stock inventory. It must be determined if customers will accept split shipments from multiple distribution locations, or they will want all line items in one shipment from a single location. Different rules might allow customers to be given a choice depending upon the order profile or the season. In these situations, product transfer management between facilities and in-transit inventory visibility must be addressed.
HOW WILL DEMAND FLUCTUATIONS AND SEASONALITY IMPACT FACILITY OPERATIONS? Storage strategy during peak season might impact the investment requirements for the facility and storage equipment. Offsite storage for peak requirements can mitigate initial investment requirements, but add operational complexities. The disposition of special projects or value-added services, like gift wrapping during peak seasons, must also be considered.
WHAT SKUs WILL BE RATIONALISED FOR EACH FACILITY IN THE DISTRIBUTION NETWORK?
WHAT ARE THE SYSTEM REQUIREMENTS TO EFFECTIVELY FULFILL DEMAND IN A MULTI-SITE DISTRIBUTION NETWORK?
If one’s goal is to regionalise demand requirements to improve customer service at a lower operating cost, the tradeoff might be increased safety stock inventory investment and costs to carry a full line of SKUs in multiple facilities. Alternatively, one may decide that only fast-moving SKUs or SKUs with certain characteristics
The warehouse management system (WMS) in the existing DC may not meet the unique requirements of the new DC. Even if the new facility is a mirror image of the existing one, host and order management interface requirements will need to be addressed. A DOM system plays a huge role in demand fulfillment,
It is important to realise that these questions cannot be answered independently. Every decision made in one of these areas has a ripple effect up and down the supply chain. The key is to focus on the integration of all these areas during the operations design process. As a result, any change made to a distribution network needs to be thought of holistically and managed by a cross-functional team. In a typical project, the supply chain division begins developing a conceptual design and the real estate begins the site selection process. But, leaving it to those two groups to drive the implementation of a new DC is short-sighted. Many other stakeholders should be working closely with these groups to ensure a seamless transition into the expanded DC environment, including construction management, customer service sourcing and transition management. To efficiently integrate the new DC into the existing distribution network, one should approach implementation of a new facility as a programme and holistically address people, operational processes and systems. Only then can one ensure that the go-live is on schedule and on budget, while improving service and reducing the overall total cost to serve.
CHANGE FOR EFFECTIVE SERVICE Adding new DCs to the network is not solely a distribution and transportation effort. Company stakeholders, from vendor relations to customer service, will be impacted by this transformation. They need to be involved from the beginning to create a more effective distribution network that minimises the total cost to serve and maximises customer service. Without this holistic approach, the overall effectiveness of the distribution environment can be reduced, and the business case outlined in the strategy could be jeopardised. Courtesy: Fortna Inc.
MARCH 2011 • SMART LOGISTICS • 65
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