LOG.India November 2010

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IndIa’s LeadIng LOgIstIcs MagazIne www.logisticsweek.com

INDIA

November 2010 — No.3 October 2010 | Vol.Vol. 4 – 4No.2

Method In Motion

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

100 `` 100

Outside The Box

Prem K Verma, CEO, TML Distribution Company Limited, a Tata Motors subsidiary, discusses supply-chain in depth and offers innovative strategies >> Page 22

TElEcom MEETING OF logisTics TITANS 16 20

low MORE FOR adopTioN LESS 34 24

NEglEcTEd MARITIME‘S 44 waTErways ALBATROSS 38

Movement of telecom CSCMP’s 2010 conference network equipment opens at San Diego was bigger aand window of opportunity richer than ever

Why Four WMS leversstill thatdoes not canhave help enough improve takers in India transport efficiency

India ignoring inland Policyisand infra issues waterways at itsIndia’s own that are hurting peril maritime growth


MO ND AY

AY RD TU A S

Y DA ES TU

ORE E ND

SUNDAY

OF DA Y

BEFOR E 12P M

BEFOR E 9AM

WEDNESDAY

BEFOR E 9AM

BEFOR E 12P M

BEFOR E END

OF DA Y

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eDITORIAL

>

Noah, A Box-Pusher?

‘C

Aanand Pandey Editor

opywriter? Isn’t that the person who types down the utterances of the judge in a courthouse?’, asked my father, without a hint of sarcasm in his voice. I, a college pass-out from a mofusil town, had just joined the then-biggest advertising agency in India, beating a number of cocksure mass-communications and English post-grads from the capital city. And my family hadn’t a clue what a copywriter was. I was not disheartened at all – not that I let go of any chance to remind, in jest, my very modest father of the ‘courthouse’ remark – I loved my job and didn’t care if nobody, even my loved ones, knew what I was up to. In the same vein, I have to admit to you, that I knew as much about logistics when I started covering this industry as my father did about copywriting. Also, the decision to explore the field of logistics was not of my choosing. An international supply-chain management magazine (not Log.India) was being launched in India about three years ago. And I kid you not, the two editors who had been hired to run the publication had joined and quit within a matter of a fortnight. Perhaps they were intimidated by the technical (and might I say unglamorous) nature of the job, or they just got spooked by the fear of the unknown. I belonged to the latter category. But I was the CEO’s favorite hatchet man, and was asked to run the magazine. No, no, I am not going to gush about how much I have begun to love the industry – it’s still growing on me. But I do want to tell you what I think I’ve begun to figure out – and this is something I have been intrigued about since the beginning – why supply-chain managers love their job. Why was I intrigued about this question in the first place? I mean, all the supply-chain and logistics managers I have met in India are dedicated and, with few exceptions, passionate about the job. But then technology managers are also as dedicated and passionate, human-resource managers are as passionate (to the detriment of other departments), sales and marketing people feel likewise, though I can’t say the same about finance managers many of whom I know appear totally drained of emotions at the workplace – but I guess that comes with the territory. The thing is, for us humans, technology could be fun. Helping fellow humans could also be fun, selling and pitching a product would be fun, but box-pushing? To an outsider, like I have been, this is what the job of a supply-chain manager boiled down to – enabling and managing the flow of goods. Much to my intrigue, the supply-chain managers I have met in these few years have a sense of mission around them, an almost fanatic zeal for detail, for accuracy, for efficiency. How their eyes light up when they talk about supply-chain – everyone from Col Nair of HyperCity, to MR Sundaresan of Dell, to Dr Rakesh Sinha of Godrej, to SK Krishnan of Mahindra and Mahindra, you have to meet them to know what I am talking about – their passion for what they do is contagious. No matter how well they are paid, what they possess is a sense of purpose that no amount of money can give to a professional. I think I get it now – their passion stems from their being able to fulfill a key human role, of seeing to it that people get their things; things that other people make for them. As simple as it sounds, this feeling of joy, thrill, the heady rush, is as fulfilling and addictive as the joy of giving. In the non-logistics world, that’s the feeling a small-town boy gets when he is given the responsibility to ensure the guests at his sister’s wedding are well-looked after and get gifts, hotel keys, food and everything else in time. That’s the joy, for those who believe in mythology, that Noah would have felt when he delivered the ‘two of every kind’ to God, or the joy that Lord Hanuman would have felt, when he ‘delivered’ Sanjeevani ‘just-in-time’ to save Lakshman. Ah, now I know why I have seen Lord Hanuman’s photos at a number of warehouses I’ve visited in the past.

Aanand Pandey aanand@logisticsweek.com

www.twitter.com/logisisticsweek

INDIA |

www.facebook.com/logisticsweek

November 2010 | www.logisticsweek.com 5


Contents 14 uPSHOt

22 cOver StOry

Industry Events

In A Class of Its own

The Fourth Express, Logistics & Supply Chain Awards 2010, a part of the Express, Logistics & Supply Chain Conclave, was an engaging affair attended by the who's who of the industry.

TML Distribution Company Limited, a subsidiary of Tata Motors, has sought to keep its supply chain network f lexible, interactive and highly efficient.

16 SPecial Feature

CsCMP 2010 Annual Conference More than 3,100 logistics and supply chain professionals attended the CSCMP 2010 Annual Conference held in San Diego.

16

34 Feature

20 cOluMN

Value For Money

Bullwhip Returns Amid signs of an economic turnaround the world over, a troubling phenomenon is rearing its head again. However, there are ways to deal with it.

20 6

INDIA |

November 2010 | www.logisticsweek.com

22

Four levers that companies can use in existing transport infrastructure to save on costs.

34


NOveMBer 2010 ADVeRtIseR InDeX

38 SPecial Feature Maritime Rules

Arham Logiparc ...................................................... IBC Capricorn Logistics .................................................13 DB Schenker ............................................................. 9 DHL ........................................................................ IFC Dighe Ports ............................................................. 27 Emirates Skycargo .....................................Back Cover Exide Industrial.........................................................11 Food Summit ........................................................... 45 Green Earth Translogistics ...................................... 31 Hannover Fairs ........................................................ 47 Hormann ................................................................. 53 Indo Arya Logistics .................................................. 43 Jay Equipment......................................................... 37 LOG.India - CeMAT '10 Seminar ...............................12 Log.India Ports Handbook ....................................... 52 LOG.India Subscription ad ....................................... 59 Man Force Trucks...................................................... 3 Orange City Logistics Park ...................................... 55 RK Foodland ............................................................ 33 Round The Clock Logistics ...................................... 51 Safexpress .............................................................. 25 Uniworld .................................................................. 29 Vijay Logistics ........................................................... 4

The Indian maritime sector could show healthy growth if certain roadblocks are removed. The treatise presented here should be made a mustread for policy shapers.

38 48 Feature

Warehouse Design The design of a distribution center may not always be ergonomic. Here's a lowdown of how it could be made into an optimum storage space.

www.logisticsw eek.com

OctOBer 2010 Vol. 4 - No.2

` 100 Germany

I N D I A’ S

48

N O .1 L O GIST

Bulgaria

Middle East

INDIA

ICS MA GAZ

INE

Method In Motion

54 PriMer

Amit Mukh erjee, VicePresident (IT and Supp ly Chain) and Group CIO deployed exem at RPG, has plary supp chain strate lygies at Spen cer‘s Retail >>

Back to Basics

Page 34

TELECOM LOGISTICS 20

A revisit to some of the commonly-used terminologies in the supply-chain industry.

Movement of telecom network equipm a window of ent opens opportunity

reGularS

56 PaNOraMa

October 2010

News

08

LOW ADOPTION 24

Why WMS still does not have enough takers in India

NEGLECTED WATERWAY S 44

India is ignoring waterways at inland its own peril

events

62

OCTOBER 2010

Wide View

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

November 2010 | www.logisticsweek.com 7


< news

TRAIN OF THOUGHT

The acquisition supports our long-term strategy to grow our international business and better serve our customers seeking to expand or enter the Indian market.

Intrigued, I started collecting information, and now have full details of more than 75 toll nakas across Maharashtra. It’s no surprise that most of them should’ve closed down years ago.

— michael l. ducker, chief operating officer, Fedex express, on the company’s decision to acquire the entire businesses of AFL, and its affiliate Unifreight India.

— anna hazare, social activist, who plans to go on a hunger strike if the Maharashtra state government does not stop collecting tolls on roads years after costs have been recovered.

There has been an increase in traffic volume. If we expand the same, Forest Act comes in the way. Either we expand or close down. — kamal nath, union minister for road transport & highways, after Environment Minister Jairam Ramesh rejected the proposal to allow expansion of national highways through national parks and sanctuaries.

opeRaTIVe InDeX* FedEx Express, AFL, Unifreight, J.P. Morgan, Evercore Partners, Famous Pacific Shipping Lanka, Bertling Logistics, Western Arya Group, Pro-Logistics India, Rhenus Logistics, Reliance Industries, CSCMP..... ....................... 10 Transport Corporation of India, InformationWeek, EDGE, TCI Developers ..... 13

*Key entities mentioned in the news section

Indian companies faced more supplychain disruptions: BCI A Business Continuity Institute survey, held across 35 countries, reported that the Indian companies surveyed experienced 20 percent more supply-chain (SC) disruptions in 2010.

A

recent survey report from by UK-based Business Continuity Institute (BCI), titled ‘Supply Chain Resilience 2010,’ revealed telling findings about supply-chain disruptions that Indian companies have faced this year. A key finding indicated that, as the number of supply-chain incidents experienced by companies covered in the survey averaged six, Indian companies experienced 20 percent more disruptions than the average. Lee Glendon, Head of Campaigns, Business Continuity Institute, told Log.India, “All the respondents in India stated that their supply-chains saw disruptions (even if once) due to local incidents of civil unrest

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One respondent in India reported an annualized cost incurred due to such disruptions between `63 lakh to `3.15 crore. or conflicts.” Glendon also revealed that IT and telecom outages, adverse weather conditions, and transport network problems were the three main factors behind 67 percent of the reported supply-chain disruptions in India. The respondents also conveyed that an ‘increased cost of working’ and ‘impaired service outcomes’ were two direct impacts of these disruptions. One respondent in India reported an annualized cost in-

November 2010 | www.logisticsweek.com

curred due to such disruptions between `63 lakh (€100,000) to `3.15 crore (€500,000). Besides India, BCI collected responses from 310 organizations from across 35 countries. The survey showed that over 70 percent of organizations in these countries recorded at least one supply-chain disruption in 2010. The survey also revealed that while awareness of supply chain risks across the geographies is increasing, many businesses remain exposed to high

levels of risk. A finding, which could worry logistics service providers and IT companies in the emerging markets, said that outsourcing – in particular in IT and manufacturing – often reduced costbenefits through greater exposure to supply-chain disruption. Among other key findings, twenty percent of respondents admitted they had suffered damage to their brand or reputation as a result of these disruptions. Fifty percent have tried to optimize their businesses through outsourcing, consolidating suppliers, adopting Just-In-Time (JIT), or lean manufacturing techniques. Twenty-four hours was the typical time period within which


< news Has your chain been affected by any of the following within the past 12 months? Adverse weather event(s) incl. flooding

95

IT or telecom disruption (unplanned outage)

78

Failure in service provision by outsourcer

62

Transport network disruption

39

Human illness (e.g. influenza)

32

Energy scarity (loss of supply..)

30

Financial failure of a supplier (insolvency)

27

Fire

21

Health & Safety incident

20

Industrial dispute

19

All other responses 0

Base: 180 (multiple responses allowed)

20

40

60

80

100

120

140

No. of companies worldwide that experienced SC disruptions

160

businesses look to recover critical activities, since sustained disruption beyond this period would cause significant economic and service delivery problems in many sectors. Very few organizations plan for disruption lasting longer than one week. Although only a number of organizations faced ‘sustainability’ disruption issues – defined in the report as environmental, health and safety or business ethics – those exposed to such risks fared badly when problems did arise, with much higher levels of adverse media coverage and brand damage with 37 percent admitting that they had suffered damage to their brand or reputation.

Delivering solutions.

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November 2010 | www.logisticsweek.com

9


< news Company news

FedEx Express To Acquire AFL, Unifreight India Bengaluru

F

edEx Corp. has announced that its FedEx Express business unit will acquire the logistics, distribution and express businesses of AFL Pvt. Ltd. and its affiliate, Unifreight India Pvt. Ltd. The acquisition will give FedEx a robust domestic ground network and added capabilities in India. FedEx expects this transaction, subject to customary closing conditions, to close by February end 2011. The deal is expected to give FedEx more than 160 service centers in 144 Indian cities,

boosting its reach in India. “The acquisition supports our long-term strategy to grow our international business and better serve our customers seeking to expand or enter the Indian market,” said Michael L. Ducker, COO, FedEx Express. “This will provide customers with more service options such as domestic ground and valueadded services, including warehousing, logistics solutions and third-party logistics.” After the acquisition closes, Cyrus Guzder, Chairman of AFL, will assume the role of

Gati Reports Q1 Results; Announces Future Plans Hyderabad

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ati Ltd has posted a 32 percent growth on total income and 65 percent on profit after tax in its financial results for Q1 ended September 30, 2010. The company posted a total income of Rs 2,265 million and a profit after tax of Rs 37.5 million. It announced plans of moving towards becoming a knowl-

edge company and offering integrated supply chain solutions through its new division, RedSun. The new company will be high on knowledge assets and lean on physical assets. It will offer temperature sensitive services, re-engineering services, managed services, value added distribution and SME logistics support.

appointment Niraj Ambani, President (Group Logistics) at Reliance Industries, has been inducted to the Board of Directors of the Council of Supply Chain Management Professionals (CSCMP) for 2010-11. Appointed as ‘Member – International’, Ambani is the first Indian to be a part of CSCMP BoD. The Board Chair for 2010-11 is Keith Turner, VP Marketing and Sales, Alcoa World Alumina. Last year’s chairman was Robert Silverman, VP– IT Biz. Sys., Tommy Hilfiger USA.

Cyrus Guzder, Chairman, AFL (left) and Hamdi Osman, Sr. VP (Operations), FedEx (ME, Africa & India) shake hands on the deal

Executive Advisor to FedEx. J.P. Morgan is serving as financial advisor to FedEx, while Ever-

core Partners and Ardashir Dubash are serving as financial advisors to AFL.

Pro-Log In JV With Rhenus Mumbai

P

ro Logistics India, a Western Arya Group company, has entered into a joint venture with the 2.7 billion Germany headquartered logistics giant, Rhenus. Rhenus has signed an agreement with Pro-Log to acquire shareholding in the group. The joint venture will be called Rhenus ProLog Logistics Limited (RPLL). With this, Pro Log is poised to enhance presence across Europe as well. This venture will enable Rhenus to strengthen its presence in Asia. By taking a holding in the Pro-Log Group, the regional turnover for Rhenus will rise by approximately $50 million. Following this acquisition, Rhenus will have its own offices for business operations at 32 locations in Asia. Through the Pro-Log Group, Rhenus plans to obtain exper-

tise in the third-party logistics field in Asia. Rhenus will fully take over the Pro-Log business locations in China and Hong Kong, and will have a much stronger Rhenus Logistics Asia-Pacific. For Pro-Log, this joint venture will mean being able to achieve goals through its Quality Management Systems. The Pro-Log Group primarily operates in south and south-east Asia and has its own offices in Singapore, the Philippines, Malaysia, Thailand and India. The company has been a partner for Rhenus Freight Logistics, particularly in the air and ocean divisions, in the past. Pro-Log has been handling significant transportation volumes between Europe and south/south-east Asia for some years.

Fedex was the First to equip delivery vans with technology to track packages 10

INDIA |

November 2010 | www.logisticsweek.com



EVENT ANNOUNCEMENT

Hannover To Hold 4th Edition Of Trade Fair For India Hannover Milano Fairs India (HMFI) is holding its 4th edition of industrial trade fairs based on Hannover Messe of Germany in Mumbai. In the four days, starting December 15-18, 2010, HMFI will present five international trade fairs which will be a B2B event for companies to reach out to user industries in India. The fairs will be held at Bombay Exhibition Centre, Goregaon, Mumbai, with visiting hours from 10:00 am to 5:30 pm. The concurrent trade fairs announced by HMFI are: MDA India, Industrial Automation India, CeMAT India, Energy India, and Surface India. C e M AT I n d i a : T h e From Whence Came HMFI event is significant for the logistics sector in India. HMFI was set up in 2007 and is a subsidiary of Suppliers of material two trade fair companies - Deutsche Messe handling equipment, AG, Germany, and Fiera Milano Spa, Italy. Yet another function of HMFI is the logistics and warehousing representation of the German State of Lower services and technology Saxony (Niedersachsen) in India. HMFI carries developers will find out a number of activities for promoting CeMAT India ideal for trade and technology transfer between the presenting their products companies in India and Lower Saxony. and services.

Sudhir Patil, Managing Director, Hannover Milano Fairs India Pvt Ltd (HMFI), has been engaged in the trade fair industry for last 30 years. A double graduate in Commerce and Law, Patil worked for 12 years with Indian Machine Tool Manufacturers’ Association (IMTMA) and played a pivotal role in organizing machine tool fairs. Patil has also worked with Indo-German Chamber of Commerce as Director (Trade Fairs) and was representative for Deutsche Messe AG (DMAG), promoting their fairs in several countries. When DMAG set up its subsidiary company in India, Patil was appointed as Managing Director. Later Fiera Milano acquired a stake and the company changed the name to Hannover Milano Fairs India Private Ltd. Patil is responsible for new business development for both the parent companies in India.

Vision Next: Key Emerging Trends in Logistics and Materials Handling A seminar jointly organized by CeMAT and LOG.INDIA With GST picture still uncertain, companies are focusing on short term initiatives for advancements in technology and process sophistication to beat costs and improve efficiency. Under these circumstances, many interesting scenarios are emerging: LSPs convey that Indian customers are rising up the evolutionary curve even faster than their International counterparts. Other trend observers say that logistics outsourcing in the Indian context is still far from satisfactory, but not due to a lack of will, but due to a disconnect in user-LSP expectations. To take the idea forward, the theme of the seminar would be deduce what the stakeholders can expect in the year 2011 in the MHE and the Logistics Industry, specifically in the following areas: Outsourcing, Warehousing, and Material Handling.

Session

Session Session

1 Outsourcing:- Integrated 3PL: Reality or Fantasy? (Key elements of the track: ‘Is there a need and a market for integrated 3PL services in India?’, ‘What are the inherent benefits for the users?’, ‘Case studies citing innovative, integrated practices’, ‘Multinational LSPs in India vs. Local LSPs: Key differences in approach to integration.’) 2 Materials Handling:- Top best practices in Materials Handling. (Key elements of the track: Labour productivity, measurement, continuous improvement, going lean – which best practices would figure at the top of supply-chain managers in the coming year?) 3 Panel Discussion:- Warehousing Strategic Master Plan 2011 (Key elements of the presentation: What are the main challenges, opportunities, need-gaps, plans and trends as the leading players – both service providers and principals – in the segment see them) The seminar would commence at 2PM and conclude at 6PM

High Tea : 12.50 pm to 1.35 pm

Networking Tea: 3.50 pm to 4.15 pm

Venue: Hall No.2D, Bombay Exhibition Centre, Goregaon, Mumbai

 Registration free of charge  Limited seats

 Rights of admission reserved For free registration contact: Tel: 022-40155947; Email: suhasini@logisticsweek.com

INDIA


TCI Bags EDGE Award; Gets Approval For Demerging Real Estate & Warehousing Division Mumbai

T

ransport Corporation of India (TCI) was awarded the InformationWeek EDGE award for its in-house development of the Express Management System (EMS), a web-based application. EMS is a concept by TCI which makes online, auto payment to associates. The system was designed and developed on the basis of accounting requirements and detailed cost benefit analysis. In yet another development, TCI has received approval from the High Court of Andhra Pradesh, Hyderabad

for demerging its Real Estate & Warehousing undertaking into a new company - TCI Developers Limited (TDL). The TCI Board of Directors gave their approval to initiate the same. With the newly formed TDL, the management will develop the company’s existing real estate into commercial ventures. It also plans to undertake development of large scale logistics infrastructure projects like multi-modal logistics parks, truck terminals, free trade warehousing zones etc.

TCI plans to undertake development of large-scale logistics infrastructure projects post demerger.

INDIA |

November 2010 | www.logisticsweek.com 13


< EVENT REPORT

Date : September 30, October 1, 2010 Event: Fourth Express, Logistics & Supply Chain Awards 2010 Organizer: Kamikaze B2B Media Venue: Taj Lands End, Mumbai

The Logistics Roll Of Honor

The 4th Express, Logistics & Supply Chain Awards 2010 was an engaging affair and saw a large turnout by the who's who of the logistics industry.

T

he Fourth Express, Logistics & Supply Chain Awards 2010, a part of the Express, Logistics & Supply Chain Conclave, was held on September 30 and October 1 at Taj Lands End, Mumbai. The awards were presented by Bharti Vidyapeeth’s Institute of Management Studies and Research, and Drive (India) Enterprise Solutions Ltd (DIESL) in association with Business India group and Kamikaze B2B Media.

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Close to 400 delegates from India and other parts of Asia attended the function. The objective of the conclave was to bring together industry leaders to discuss and debate the trends in the industry, issues affecting the industry and create a networking platform for all attendees. The two days of the event witnessed industry leaders speaking on topics such as adoption of an integrated logistics strategy and the last mile implications of the structural shifts

November 2010 | www.logisticsweek.com

occurring in the distribution channel. Speakers also discussed the significance of greening operations and ways in which supply chain can reduce carbon footprint. Some key supporters to this conclave were FedEx, Safexpress, Kuehne+Nagel, DB Schenker and eBizNet Solutions. The second day of the event heard speakers hold forth on whether India should have its own benchmarking standards and what should one


Christian Nebel & Shubhendu Das, Schenker (I) Ltd, received the award for Best Ocean Freight Co. of the Year from Harish Bhatia & Anshuman Singh.

Kenneth Koval, VP (India Operations), FedEx, delivered the welcome speech.

Kenneth Koval & Indranil Sen, FedEx Ltd, bagged the award for the Best Cargo Carrier of the Year from Anshuman Singh, MD and CEO, Future Supply Chain Group and Harish Bhatia, CEO, Kamikaze B2B Media.

do to make this idea materialize. Other topics touched upon were the necessity of adopting technology to improve supply chain efficiency and a practical approach in using IT, and balancing parameters like sustain-

ability, customer service, efficiency and cost. The awards ceremony was presented by the Future Supply Chain Ltd. Some of the winners were: Best Express Provider of the Year (Do-

Volkmar Mueller of Kuehne + Nagel Ltd received the award for the Best Freight Forwarder of the Year from Anshuman Singh and Harish Bhatia.

mestic & International) - Blue Dart Express and DHL Express; Kale Consultants bagged Best IT solution provider in the logistics industry, while Safexpress took home the Best Logistics Park of the Year. INDIA |

November 2010 | www.logisticsweek.com 15


report

exclusive

< Special feature

CSCMP 2010 Annual Conference: Field Report Every year Log India brings out a special report on the Annual Conference of the Council of Supply Chain Management Professionals. Last year, the Conference was held at Chicago, and this year San Diego played host to the Annual Global 2010 Conference. A ring-side view.

The Indian contingent at the CSCMP conference.

T

he Council of Supply Chain Management Professionals or CSCMP, as it is known, held its annual conference in the San Diego Convention Center from September 26 to 29 to host more than 3,100 logistics and supply chain professionals from 41 countries – boasting of arguably the biggest conglomerations of Supply Chain management professionals and thought leaders from across the globe. Various seminars held during the four-day event offered visitors a broad spectrum of topics including those of transportation, warehousing, outsourcing, tactical and strategic approaches, software and other technology, public-policy issues and more and gave the partici-

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pants access to CSCMP’s premium educational content. This annual forum served not only as a showcase for supply-chain professionals to get the updates of what is happening across the globe but also acted also a platform for industry professionals to get recognized at a global arena. During the event, CSCMP recognized those who have made significant contributions to the understanding of supply chain, both from academia and the industry. CSCMP also gave away its annual ‘Distinguished Service Award’, one of the most prestigious in the field. The Council presents this award annually to an individual who has made significant contributions to the

November 2010 | www.logisticsweek.com

11/20/2010 10:45:54 PM


Rick Blasgen - CEO, CSCMP, with Anshuman Neil Basu - President, CSCMP Mumbai Round Table.

art and science of supply chain and logistics management. The award is the highest honor that CSCMP bestows upon an individual for achievements in these two professions. Taylor, currently a strategic consultant, speaker, and executive coach, has served the industry for over 40 years in the shipper, carrier, service provider, and educator communities. The 2010 Distinguished Service Award was given to Charles L. Taylor, founder and principal of Awake! Consulting. The Doctoral Dissertation Award was given to Matthias Ehrgott for his Dissertation title ‘Social and Environmental Sustainability in Supplier Management — A Stakeholder Theory Perspective on Antecedents and Outcomes’. Ehrgott is Assistant Professor of International Business & Supply Management at WHU – Otto Beisheim School of Management, Germany, since January 2010. His research focuses on social and environmental sustainability in the supply chain, emerging economy sourcing, decision-making processes in the purchasing function, and internationalization strategies.

tracks and tours The trade show that was organized on the sidelines of the conference was themed: "Supply Chain of the Future". The trade show saw participation from over 100 companies with interactive displays of supply chains in action. Dubbed as the world’s largest and the most innovative exhibit showcasing the future of supply chain innovation in more than 1,00,000 square feet, the expo showcased a world of automated innovation where one could see, first-hand, the technologies, processes, and solutions provided by companies in the supply-chain business. It gave an in-depth view of the parts that make up a world-class

The Metro Transit System at San Diego transports 2,90,000 passengers every weekday.

The audience in rapt attention at a CSCMP session.

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November 2010 | www.logisticsweek.com

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< Special feature supply chain with technical experts answering the most complex questions posed by the attendees. The best part was the various track topics that allowed attendees to move in and out of sessions to optimize their educational opportunities and make the most of their conference. Every year, the Facility Tours organized by the

One of the exhibits in the 'Supply Chain of the Future' trade show.

CSCMP took participants to the PETCO Park, which is also home to the San Diego Padres.

event hosts is one of the key highlights of the conference. This year, too, the facility Tours, organized by the sponsors and CSCMP took participants to places like the PETCO Park which is also home to the San Diego Padres. Built in 2004, PETCO Park is the premier sports facility in San Diego. The ballpark hosts between two and three million people during each baseball season and features many other notable events such as international soccer and rugby, the World Baseball Classic and concerts. The tour discussed the operation of the ballpark as it relates to the movement of products and people during busy event days. Another tour was to the San Diego International Airport to gain an insider’s understanding of the Airport’s operations, including cargo sorting, safety systems, air and ground traffic control, etc. The other most interesting tour was to the US Aircraft carrier and warship USS NIMITZ to see the navy Aircraft carrier up close and personal – a once-in-a-life time experience in itself, in which the facilitated tour allowed attendees to see a US Aircraft carrier on a normal working day. The general session speaker, Carlos M. Gutierrez, Former Secretary of the US Department of Commerce and Former CEO and Chairman of the Board, Kellogg Company, spoke on the topic ‘Mastering the New Economic Realities’. One of the most interesting presentation was one given on the concluding day by Jack Bacon, PhD, P.Eng, NASA Scientist, Distinguished Futurist, on the topic: ‘Nonlinear Thinking for the Nonlinear World’. Jack Bacon’s extensive career includes roles in the development of many cutting edge technologies, including

Visitors come from all across the globe to the conference.

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The city of San Diego was dotted with the conference signages.

controlled thermonuclear fusion, factory automation, and the globalization of business. Bacon is currently serving in the management team which oversees the construction and operation of one of the most complex technical projects in history – the International Space Station (ISS). The ISS is an research facility stationed in low Earth orbit – the largest man-made satellite in history – which serves as a laboratory with microgravity environment used to conduct experiments in chemistry, biology, medicine, physics and physiology. Bacon’s presentation threw light on the forces that cause revolutions in society, including shifts in economics, transportation, demographics, and other social measures. His dynamic presentation examined with facts and figures the state of the global supply chain, and revealed where the next trend may take us. Took the entire audience spellbound and hooked to their seats. Situation was quite different from the usual kind of seminars which we usually witness. Perhaps the lesson was that sometimes a non-logistician in a logistician’s world is not only a welcome change but also is vital to the advancement of logistics. Topics as wide and rich as ‘The Impact of Panama Canal on Global Shipping’ were discussed during the General Session which was presented by the Professor of MIT and the CEO of the Panama Canal Authority. The topic gained much importance during the conference because of the expansion of the Panama Canal, which is scheduled to open in 2014, and which is an incredibly large and complex civil engineering mega project. While the expansion will certainly improve the Panama economy as well as shift global shipping patterns, it will also position the republic as

a leading logistics hub in Latin America. The session addressed the impact that the expansion will have on the canal and on the growth of Panama into a logistics and global trade hub. With 24 educational sessions and more than 40 tracks and more than 130 topics of discussions which were offered throughout the conference giving attendees many mind-baffling options to select from and interact. Topics such as ‘The Year 2020: Supply Chain Planning and Execution Systems’, ‘15th Annual Third Party Logistics Study’, ‘2010 Career Patterns Report’, ‘Social Responsibility and Environmental Impact of a reverse Supply Chain’, ‘Measuring the Green Effectiveness of 3PLs, ‘Identifying and Optimizing for True Cost-to-Serve’, and ‘The ROI of Going Green: What Are the Economic Realities?’ were some of the most interesting ones. Among the mega sessions, ‘Finance: Mergers and Acquisitions in Supply Chain Space’, and ‘Surviving the Supply Chain Tsunami’ were the interesting ones. To make a choice from more than 160 different sessions though is a diff icult task in itself ! Anshuman Neil Basu, President of CSCMP’s Mumbai Roundtable, who attended the Conference, said, “Needless to say that after four days of intense, interactive education and networking opportunities, all of us enjoyed the conference and could take away valuable information and ideas from what was truly a once-in-a-year kind of supply-chain event. Be it any topic – global sourcing, supply-chain metrics, sustainability, new trends and technology, I find it all here. These four days become my annual food-for-thought days on supply chain for the entire year. Undoubtedly, for anyone in supply chain, this is one event that must not be missed.” INDIA |

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< Column

Source: 2.bp.blogspot.com

Bullwhip Is Back Padmini Pagadala General Manager, TPG Consulting, Mumbai

Amid signs of an economic turnaround the world over, a troubling phenomenon is rearing its head again, cautions Padmini Pagadala, and suggests ways to deal with it.

T

The fesTival season is here. The time for the diyas and the fire lanterns and the Christmas trees and the new Year cards has arrived. amid all the revelry, there are some worrying issues keeping top vPs busy, globally. even when there are signs that the global economy is finally coming around. as TPG’s website statistics show, the number one whitepaper being read on our site is about inventory reduction. Businessmen are concerned about customer service and inventories. Why? an old nasty business phenomenon once thought eradicated has manifested itself again. The bullwhip is back.

What is Bullwhip The distortion of actual customer demand information from the retailer up the supply chain to the manufacturer is known as the Bullwhip effect. When a person cracks a whip,

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the wrist only needs to move just a little for the motion to get exaggerated at the top of the whip — making a grand arc. small blips in the orders at the customer’s end may get exaggerated up the supply chain and translated into larger unnecessary swings in demand at the manufacturer much like the action of cracking a whip. These exaggerations drive up inventories greatly. The bullwhip effect was first noticed in the sales of baby diapers at P&G. although the demand for nappies were fairly constant (Don’t they have to be?), small increases in orders were getting conveyed a tad bit magnified upstream. as demand information inched its way back tier by tier it resulted in seemingly significant variations in demand at the manufacturing plant. The implication to P&G was large plant inventories to deal with this problem which led one executive to say “Crap.


c

There has to be a better way. Babies don’t behave like this.” Babies don’t, but supply chains do. They especially do when uncertainty or change gets inserted into business like entering into and coming out of a recession. Tingting Yan, a researcher at arizona state University, has studied the demand volatility experienced in the U.s. when we entered the great recession of 2007. he reports: “…although the month-to-month volatility of [Us] consumer demand inCReaseD threefold during the recession [in 2007], monthly variation in retailer inventories actually DeCReaseD by four percent during the same time period. Wholesalers were able to reduce month-to-month variation in inventory, but their inventory levels increased by two percent; while manufacturers saw their inventories increase and become 150 percent more volatile on a month-to-month basis.” Bear markets create the Bullwhip effect, but so do lethargic bull markets. The recent recovery has led many of our Us clients to lament about terrible manufacturing lead times coming out of asia. Many of the manufacturers were caught off guard. They had belatedly driven down their inventories but had not forecast the need to build them up in time. finished goods flowing back to the West have struggled to make schedule. at one of our apparel client manufacturers, orders have been consistently 50 to 60 percent late out of asian factories from June through september! The culprit? Mainly raw material inventories. They were too low.

Effect in india The Bull also raises its horns when there are many trading partners in a supply chain. Because of our interest in being tax efficient, inventories are excessive in india. My favourite repartee about the indian supply Chain is inspired from the samuel Coleridge’s The Rime of the ancient Mariner — Inventory Inventory Everywhere, Not a Case to Ship. We have a C&fa (Carry & forwarding agent) in almost every state. We have distributors in most cities. We have trucks in transit and worst yet trucks in-waiting at our warehouses and at the state borders. We have more “tiers” of inventory than our western colleagues. and yet the order fulfillment rates in india are nowhere close to those in matured markets. The number of tiers actually works against us. The Bullwhip triggers the accumulation of great amounts of inventories – often the wrong type.

The Bullwhip Effect Quantity Ordered

Retailer

Distributor

Manufacturer

1A small change at the source can cause a huge exaggerated interpretation up the supply chain (Source: Wikipedia)

Taming The Bull one would think that Bullwhip would not have impacted the western markets as tech savvy as they are. But as the market went down, it was this very dependence on technology that caused the whiplash. The manufacturers and the distributors instead ought to have paid more attention to their immediate node up and down the supply chain stream. inventories should not just be set by an automated system but checked when there is a major change in the economy. electronic Data interchange (eDi) is significant for all the players to get a holistic idea that can fight their impulses to act exaggeratedly when there seems to be a small increase or decrease in customers’ orders. While having a good relationship with your customer (retailer, distributor - whoever it may be) would ensure that they are not ordering in excess, based on their perception of how much you may short their order and thus avoid short gaming, everyday low Pricing would be a definite guard against sales blips owing to price reductions. sometimes you may receive mixed signals from the market. in such times it may just be best to shorten planning horizons, order in smaller quantities more frequently and stabilize your inventory. The bullwhip is that much more dangerous when inventories are already in excess. strategizing based on a holistic look is the way to tame the bull. The author can be reached at padminimp@theprogressgroup.com. INDIA |

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< Cover Story

Prem K Verma Chief Executive Officer TML Distribution Company Limited

Photo: Ramlath Kavil

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refining SCm Synergies TML Distribution Company Limited has woven its supply chain structure expertly and also offers well-thought out solutions to the industry. Pamela Cheema investigates.

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hrough the cream coloured slats of the window blinds in the small conference room one can see the quirky skyline of Cuffe Parade, Mumbai – high rises jostling with shanties, with the glimmer of a blue sea in between. The traffic rages below, but none of this disturbs the peace of the conference room as Prem K Verma, the genial CEO of TML Distribution Company Limited (a 100-percent subsidiary of Tata Motors), weighs in on the logistics issues of his company as well as those confronting the industry. He deftly analyses these problems and splices together solutions which he fervently believes will benefit the industry. The last two decades have seen remarkable and pioneering changes in the logistics sector in India, compelling organizations to rethink and rework their supply chain networks.

Groundbreaking Changes When Tata Motors observed the groundbreaking changes in the logistics sector and realized that the newly evolving business landscape required new solutions too, Tata Motors Distribution Company Limited was established

in August 2008. “TMLD started its activities with the passenger car business in Pune,” says Verma. “It was planned to expand operations of the new company in a phased manner, rather than go for a ‘big bang’ approach.” Far-reaching changes in the logistics sector have also been accompanied by swift differences in consumption and distribution patterns in the last two decades. Consumers no longer reside only in major cities and metros, but are dispersed across the country, with many potential customers based in Tier II and Tier III cities. With this geographical differentiation with the past, TMLD has reworked its supply chain network to distribute smaller lots of shipments to its diverse customer base on a replenishment basis. The supply chain network of the company is broadly structured on the SCM architecture followed by various corporates viz. transportation, warehousing and distribution. Transportation, which mops up a sizable 35 percent of the total logistics cost in the industry, has been outsourced by TMLD at all its plants. “Road transportation has been outsourced by us at all our factories,” notes Verma. “Passenger cars are billed from our plants INDIA |

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< Cover Story Business Potential – automobiles in India Product

Current volumes

5 years projection

Two wheelers

8 MN

12 MN

Three wheelers

0.5 MN

1.5 MN

Passenger Ve- 2 MN hicles

5 MN

C o m m e r c i a l 0.4 MN Vehicles

1 MN

total

19.5 MN

10.9 MN

and transported directly from our factories. This is also true for Small Commercial Vehicle (SCVs) like the Ace and Magic. Light, medium and heavy commercial vehicles are transported directly to various RSOs (regional stockyards), while the chassis of LCVs, MCVs and HCVs are driven by contractual drivers to their destinations.”

refreshing Change In an effort to set new paradigms for eco-friendly initiatives, the chassis of its medium and heavy commercial vehicles are transported by trail-

ers to the company’s stockyards. The trailers are open bodied and and not close bodied like the ones used in cars. This has resulted in a substantial decrease in pollution, fewer traffic snarls and a sparing use of fuel. “This is a new initiative in our supply chain model,” says Verma expansively. “Since the trailers can be used for chassis transportation only, our biggest concern is of having a return load. But despite the transportation costs, we are willing to pursue it in the larger interests of the country.” It has been estimated that the Indian railways’ share of auto movement in the logistics pie was two percent till 2008-’09. According to Verma, “as per last information available,” their share has crawled up to five percent as opposed to a startling 35 percent that foreign railways contribute to auto movement within their respective countries! However, in an effort to ease logistics movement and improve auto congestion, the railways in this financial year announced a new policy which gives OEMs and

3PLs the stellar option of designing and operating their own wagons. “In addition, the railways have also announced a new auto hubs policy to facilitate the loading, unloading and safe parking of vehicles,” notes Verma approvingly. “One has been developed at Shalimar, in West Bengal and nine more which are in the pipeline will be established across the country in the first phase.” Since 2009, the popular Tata brands, the Nano, Ace and Magic

It has been estimated that the Indian railways’ share of auto movement in the logistics pie was two percent till 2008-’09.

Composition of Logistics Costs in India Losses 14%

Inventories 25%

Packaging 11%

Handling and Warehousing 9%

Customer Shopping 6% Source – CRISIL & India Infrastructure Research

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Transportation 35%

have been transported from the Tata plant at Pantnagar in Uttarakhand by the railways. The railways also assist in the transportation of commercial and utility vehicles like the DI and the Winger from the plant at Pune. In a sharp departure from its former benign role, the Indian railways are now willing to consider providing last-mile connectivity and also offer the facility of a ‘milk run’. Distribution Centres or regional stockyards (RSOs), as TMLD terms them, are a critical node of logistics activity. The company has one RSO in every state from where light, medium and heavy commercial vehicles are billed. The management of its stockyards at Pune, Pantnagar and Sanand has been outsourced to a firm with extensive experience in this crucial sphere, while orders are


91 11 26783281

91 11 26781481 82

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< Cover Story executed by its own staffers with expertise in SAP and SIEBEL software.

transportation Dynamics Commenting on the demand drivers of LSPs across sectors in India, Verma says that the “automotive, FMCG, electronics and pharmaceutical industries initially fuelled the demand for 3PLs, with IT hardware now being one of the largest users of such services. 3PL activity is still in a nascent stage in India and is less than 10 percent of the total logistics cost in India as compared to say, Japan, where it is 80 percent of the cost.” TMLD has employed more than sixty transporters each for its stockyards at Pune and Sanand; 90 percent of these transporters are common and operate from both locations. Transport Corporation of India (TCI) was appointed the third party logistics provider for the Nano

from Pantnagar as well as Sanand. The company is establishing another plant at Dharwad in Karnataka “and as soon as that plant starts manufacturing, we will be able to provide load from three regional locations,” points out Verma proudly. “It will also reduce the problem of empty backloads.” With supply chain networks becoming increasingly intricate, costs need to be pegged down to ensure satisfactory margins. Transportation accounts for a major chunk of cash outflow – a hefty 35 percent with one-third of this figure reserved for fuel costs. To whittle down costs, TMLD uses multimodal transportation – a judicious mix of rail and road transportation along with the use of rail containers. Analysing the issue of supply chain costs which often tend to go awry, Verma agrees that “since we have multiple

plants, it helps us to synergise our operations and minimize empty backhauls, as the return load is the biggest factor in freight calculation. Optimum utilization of assets can be the biggest differentiator for any service provider as a return on his investments.” The CEO also readily accepts that having common transporters for the plants has enabled TMLD to rein in ballooning costs and offer better business proposals to their transporters.

Collaborative Logistics But with inflation leading to a volatile market and with often unpredictable dips in the market economy, Verma deeply believes that the future of supply chain lies in combined operations. “Collaborative logistics is the future in case you want to keep your costs low and improve your service levels,” emphasises

TMLD has employed more than sixty transporters each for its stockyards at Pune and Sanand

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72


< Cover Story Verma firmly, “and this holds true not just for the automobile industry, but any industry which has the problem of empty hauls. The step taken by some OEMs in this direction with the support of the Society of Indian Automobile Manufacturers (SIAM) might look like a pie in the sky at

the moment, but it is the right step and futuristic.” A c c o r d i n g l y, TMLD is working on plans of collaboration with other Original Equipment Manufacturers (OEMs) with the help of SIAM; the collaborative logistics will not be confined only to four wheelers, but will also include two wheelers from other companies

results of collaborative logistics project (A pilot project with select oeMs and SIAM)

Modus operandi No. of OEMs involved

06

No. of Transporter involved

12

No. of routes selected

08

Process Selection of Common Transporters Selection of routes multiple transporters on every route results Improvement in daily running

25%

Improvement in turnaround time

43%

Improvement in utilization of Assets 40% due to more no. of trips

Collaborative logistics is the future in case you want to keep your costs low and improve your service levels. this holds true not just for the automobile industry, but any industry which has the problem of empty hauls.

so that corporates can derive maximum benefit from such synergies. The problem of empty backloads is particularly acute in Kerala and the north-eastern states. Since some regions in the country have grown into major auto production centres, the movement of vehicles from these states to vast consumption hubs leads to the problem of empty backloads, with a resultant corrosive effect on profit margins. To avoid such missteps, TMLD encourages “its LSPs and 3PLs to look for tie-ups even outside the auto industry to take care of the return load,” says Verma bluntly. “We also look for opportunities for such coordination within our own group companies which can help in the optimization of resources.”

evolved SCM Model As the automobile industry has evolved and become a major feeder of new consumption centres in the country, its supply chain structure has mutated into a new model. From a supply driven and push model, it has changed into a demand driven and pull model which is more cyclical in nature. Festivals see a surge in sales across the country, with auspicious festivals like Dussehra and Diwali setting the cash registers


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< Cover Story ringing. Dhanteras very favourable day products and many their highest sales this day!

is considered a for buying new dealers register of the year on

Shared Distribution Centres Tata Motors has established Distribution Centres (stockyards or RSOs)

in every state of the country; vehicles are transferred from the plant to the stockyards and invoiced directly from the RSOs to dealers or customers. In the case of the Nano, it is invoiced from the plant and transported directly to dealers by rail or road. Verma fervently believes that

TMLD standardises the size and dimensions of its car carriers which transport vehicles across states.

Vehicles are transferred from the plant to the stockyards and invoiced directly from the RSOs to dealers.

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sharing Distribution Centres with other OEMs will refine service levels and trim costs. He admits that there may be many OEMs who are averse to the idea “but it is my personal opinion that it will help every industry, including the automobile industry,” he says strongly. In such an eventuality, the OEMs would agree to use common auto hubs for their loading, unloading and stocking needs; the hubs would be managed by a 3PL who would be appointed in consultation with the OEMs and SIAM and provide logistics support to all the OEMs. “It is my personal opinion,” emphasises Verma quietly, “that as the volume game intensifies, none of us will have much of a choice in the automobile industry as well as other industries, but to accede to such options. As cost and customer service are the two important Cs in any industry, we will be driven to collaborate with each other.” In an attempt to infuse new life into supply chain strategies, shrug off inefficiencies and also drop costs, TMLD standardises the size and dimensions of its car carriers which transport vehicles across states. Currently, each state has its own laws on the dimensions of carriers which often result in delays as trucks struggle to cross state borders. Similarly, costs and operational considerations necessitate an even and adaptive SCM network. As a matter of fact, the supply chain structure of any corporate cannot afford to be rigid and inflexible, rather it should be interactive and supple to yield the desired results. TMLD encourages its employees to have regular meetings with its service providers, iron out the wrinkles, sort out thorny issues and bounce off ideas which may fructify later. “We have very regular meetings with our business associates to get their feedback on issues which concern us both,” smiles Ver-


< Cover Story ma. “In fact, we prefer to use a small select group as a sounding board for ideas before we implement them.”

Firming the Backbone The vastness and complexity of operations of a company like Tata Motors and its subsidiary TMLD would have been daunting had it not been for the supportive framework of well-developed IT infrastructure.

In europe a logistics company spends four percent-five percent of its revenues on It. In India, the financial outlay on It plummets to even less than a dismal 0.5 percent.

IT, de facto, is the rock solid base on which the logistics industry has been built, brick by brick. According to Verma, in Europe a logistics company spends four percent-five percent of its revenues on IT. In India, the financial outlay on IT plummets to even less than a dismal 0.5 percent! “It’s really due to a lack of

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awareness,” remarks the CEO. TMLD uses SAP for integrating its central and state stockyards as well as its plants. SAP integrates sales and planning with production. Order processing for the passenger and commercial vehicles is executed with the help of SAP and SIEBEL. Tata Technologies provides application support, while IBM assists with hardware and networking support. In addition, the company is developing a portal where the data of vehicles billed and allocated to specific trucks and trailers will flow in. TMLD’s transporters will track the progress of their vehicles till they finally reach their destinations and are unloaded. “This will help the dealers immensely,” points out Verma, “as it will show them the progress of their trucks or trailers en route and also the probable date of reaching their destinations. On the basis of this information, they will be able to arrange the resources or space for their vehicles and confirm deliveries to customers.” The portal will also indicate delays that may occur en route and this will enable TMLD and the dealers to plan possible alternatives to fulfil customers’ demands.

Meeting Customers Needs TMLD has woven an intricate supply chain network and attempted to make it as efficient as possible to sidestep the grumps and rages of consumers and supply chain personnel alike! India is the fastest growing automobile market in the world today after China, as well as the emerging production hub for small cars – a stark contrast with developed countries whose economies were in free fall. The Indian market is pulsating with the excitement of growth

November 2010 | www.logisticsweek.com

and there are many in the logistics industry who feel that the automobile industry should swiftly adopt the supply chain practices of developed nations. Verma, however, cautions against a blanket acceptance of all western SCM practices. He advises that “we should go one step ahead of all western countries and not blindly follow their supply chain practices, as many of them may not work in our country.” Sift through western SCM practices well is his advice, as many of them may well be headed for the slammer in India. TMLD’s own practices appear to be well-set and followed carefully by its personnel. Vehicles are received in its stockyards, where a set inspection procedure is observed for every vehicle by the employees of the yard management agency. Movement of vehicles and their storage is allocated in the yard according to a plan. The internal and external quality of vehicles is maintained in the yard, with first-in and first-out followed as a rule. Vehicles are transported by the approved mode of transport to their destinations; cars and utility vehicles are washed before they are loaded on to trailers. On the car carriers, tyres are well lashed and sidewall cushions provided to ensure lack of damage. Finally, a checklist is filled in before the vehicles are handed over to the transporter, which is scanned carefully by the dealer when he receives the vehicles. And how does TML Distribution Company Limited rate itself on performance and observance of supply chain management practices? “For us, the dealer’s acceptance of an OK vehicle is the important parameter of our operations,” says Verma brightly. Perception, an objective assessment and strenuous efforts to attain desired levels can reinforce performance and TMLD’s incisive and far-sighted approach appears to augur well for the future.


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< TransporTaTion

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Getting More For Less nitin agarwal, Associate Member of Management Board at Miebach Consulting,has some advice for companies seeking ways to manage transportation efficientrly. He lists out four basic levers organizations can use to reduce transportation cost

S

upply chain and logistics is being looked at keenly as it helps to differentiate the product in the market and service the customer better. Along with the supply chain processes, companies need to focus on logistics cost. The transportation cost incurred by a company could range from 2-5 percent of the turnover (depending on the industry, in some cases it could even go upto 12-15 percent especially in the case of bulk material). Hence it is crucial to identify the levers impacting transportation cost. Various levers need to be kept in mind while designing the transportation strategy of a business so as to minimize cost. In this article we cite examples from various industries primarily requiring different type of vehicles to illustrate the impact of various levers.

Using Market Truck Capacity Transportation cost is governed by supply and demand of vehicles on various routes. For instance, during the orange season there are fewer trucks available in Nagpur as most of them are employed in shipping out oranges. As demand is high and supply limited, the cost of transpor-

tation shoots up. Making use of the market trucks for transportation would be helpful as the capacity already exists and somebody has invested in the same. Though buying customized trucks call for higher investment and few opt for this service, it not only means a higher risk of investment but putting a premium on services rendered. The investor has to deal with depreciation and higher cost of operations in the initial year. The customized trucks like car carriers, refrigerated vehicles, additional fixtures for carrying heavy components, container movement etc. is always more expensive as compared to normal 9 ton trucks available in the market. There is a tradeoff between higher truck loadability of a customized truck versus its additional transportation cost. A 9-ton truck can carry 800 kgs of a light-weight product like potato chips because of the volume constraint, while a customized truck can carry up to 2 tons Return Load

Usage of market truck capacity

Truck Turnaround Time

Transportation Levers

Economies of Scale

Transportation Cost

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< TransporTaTion

return Load Return Load for a commercial vehicle is an important factor and helps in determining the freight rate for a trip. A higher return load ensures more billable kilometers for the

impact of return Load 0.93x 0.75x 0.56x 0.37x 0.19x

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20%

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40%

60%

80%

100%

Destination Distance in Kms Delay in Days per trip

commercial vehicle and hence the fixed costs could be amortized over higher distances thus reducing the cost per km (in other words, a lower freight rate). The routes where return load availability is high would translate into lower freight rates as the trucks are utilized on the return trip as well. The freight rate of a car-carrier for Hyundai would be higher for the East as there is no return load as compared to the North from where the carrier can carry load from Maruti on the way back to South. Recently companies have realized the potential of freight reduction by ensuring closed loop transport for the trucks carrying their goods. So companies tie up with their group companies for return loads or hire transporters who can ensure return loads thus reducing the freight rate for the company.

Truck Turnaround Time

1.12x

0

Delay in Days per Trip

Freight

of the same material in one trip. One might have to pay a freight premium of up to 25-40 percent for a container but the load carried is almost 250 percent more, thus resulting in substantial cost savings. A higher transportation cost should not deter companies from going in for customized trucks when the need arises. It is more expensive to create capacity for transport as compared to using the existing market capacity. A good example here is that of Maruti who created car-carrier capacity from North to West, South and East after setting up its plant in Gurgaon. Much later when Tata Motors set up ita facility in Pune (West), it began using Maruti’s car-carrier capacity from West to North. Maruti also offered lower transportation rate as they were carrying the cars from West as return load. Similarly Hyundai created capacity from South to West and began using the capacity created by Maruti from South to North. It makes business sense to use the market infrastructure as it results in lower cost. Some business constraints like safety, service levels and pilferage may, however, tilt your decision in favor of investing in new capacities.

120%

Truck turnaround time helps determine the freight rates on various routes. Truck turnaround time comprises the loading time at the source, transit time, the unloading time at the destination and the time taken for the return trip. A reduced turnaround time results in more number of trips per truck and hence higher truck utilization and lower trans-

November 2010 | www.logisticsweek.com

portation cost. Truck turnaround time plays an important role for shorter distances as the non value-added activities as a percentage of total time are higher for shorter distances since the time spent on the road is less. As is evident from the graph, a two day delay per trip for a 300 km distance will mean a freight rate increase of 20 percent and for longer distances (typically more than 1,500 km) the impact is a mere 5 percent. The truck turnaround time for loading and unloading can be reduced by improving the warehouse processes and ensuring minimal waiting time for the trucks. More companies have realized the advantages of reduced truck turnaround time and are focusing on improving their warehouse processes and have begun initiatives like green channel for short distance trucks. To reduce transit time, transporters have begun employing two drivers per truck as it increases the distance travelled in a day and hence better truck utilization. The feasibility of having two drivers per truck needs to be examined on a case-to-case basis as an extra driver results in additional cost and overheads.

Economies of scale Transport capacity needs to accom-


enable them negotiate better with the transporters. It is critical to ensure that the business is not too dependent on one or two transporters. The operations should be transparent and ascertain strict monitoring of processes and a KPI dashboard should ensure that transporters do not take undue advantage of the situation.

Average Cost

modate for business peaks to ensure good supplies of material in the Supply Chain. If the transportation on various routes from one facility is awarded to multiple transporters, it results in each transporter providing for the additional buffer to manage the peaks for his business. On the other hand if the total business is managed by one or two transporters it results in aggregation of peaks and hence reduced overall buffer of transportation capacity to manage the peaks. This results in better utilization of the trucks and hence lower freight rates. Economies of scale plays an important role in managing transportation costs for the transporter and determining the freight rates. It is only now that companies have started considering all transportation business (inbound and outbound) as part of one contract to

Diseconomies of Scale

Output

The long haul A thoughtful consideration of the transportation levers while designing the transportation strategy helps to control costs and manage the function better thus ensuring timely deliveries and quicker products availability. The essence of controlling transportation cost is to maximize the asset utilization. All the levers mentioned above aim to maximize asset utilization. We are in a time where

the vendor has to be treated as a partner thus acquiring better services at controlled costs. More transporters are willing to work on zero based costing principles if the companies can ensure continuous business. That seems to be the way forward considering the demanding business requirements. The author can be reached at nitinagarwal@ miebach.com

INDIA |

November 2010 | www.logisticsweek.com

37


< Special Feature

Poor Infrastructure Restrains Maritime Photo: Ramlath Kavil

Growth

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November 2010 | www.logisticsweek.com


The Indian maritime sector could show healthy growth if certain roadblocks and imbalances are removed. The treatise presented here — prepared by the Indian National Shipowners' Association, KPMG and Supply Chain Leadership Council — should be made a must-read for policy shapers.

INDIA |

November 2010 | www.logisticsweek.com 39


< Special Feature

T

he high growth trend in the Indian GDP is reflected in the country's burgeoning international trade and the consequent high growth in traffic volumes for the shipping and ports sector over the past few years. High Export-Import (EXIM) growth is not limited to India. Trade volumes in the the entire south Asia and south-east Asia region have grown at a higher rate than the global average due to the growth in Asian economies, principally China and India. This would, in turn, translate into additional demand pressures on the Indian transportation sector and its main components – shipping, ports, rail, multimodal and coastal shipping. Overall, the Indian maritime sector is poised for healthy growth complementing the growth of the Indian economy. This requires interest and investments by multiple stakeholders, including the government, the public and private sector. Moreover, there is need for urgency to improve the physical and the legislative infrastructure related to this sector, thereby creating an environment conducive to optimal growth and development.

Shipping Shipping is a cyclical and capital intensive business, the fortunes of which are significantly affected by an interplay of factors such as global trade demand on the one hand and vessel order delivery on the other. The shipping sector has witnessed significant cyclicality in the last decade, with a surge in freight demand in the middle of the decade slowing down dramatically owing to a global recession towards the end. With the sector completely open to foreign investment, there has been significant improvement in shipping capacity available to Indian manufacturers and traders, as well as opera-

40

INDIA |

tional and scale efficiencies. Today, India is firmly placed within the global liner network connecting Indian importers and exporters to the remotest parts of the world. The average capacity and parcel size of a vessel calling on Indian ports has trebled since the beginning of the decade and there have been significant improvements in turnaround time and similar measures of operational efficiency. There has been significant investment made in the sector both by Indian shipping companies and International organizations alike. Challenges, however, remain both on the physical and operational front as well as on the policy front. Indian shipping is not able to achieve its full potential because it is restricted by limited draft availability in most ports, suboptimal distribution of port capacity across the coastline, limited road and rail evacuation capabilities and restrictive legislative infrastructure in terms of tax and other policies. This article discusses these challenges in great detail in subsequent sections.

ports The ports sector in India has had a brilliant run in the last decade, witnessing significant additions in capacity as well as cargo types across the Indian coastline. This has been possible with the aid of an excellent public-private-program executed by the government of India in the ports sector, attracting significant investments from Indian as well as overseas port operators and investors. Current trade growth trends suggest that the Indian ports sector would continue to require significant additions to capacity to meet future cargo handling demand across cargo types, especially on the container side. Unfortunately, however, there has been a marked slowdown in the award and execution of port

November 2010 | www.logisticsweek.com

projects. Indian ports tend to be congested, affecting optimal operation. Besides very often, capacity on the water side is limited by capacity on the yard or gate side as well as the evacuation support available to the port. Indian ports face significant hinterland connectivity pressures, often limiting overall available capacity to the capacity of the rail/road linkages.

coastal Shipping and inland Waterways India's 7,500 km coastline and over 14,000 km of navigable waterways make it an ideal geography to effect transportation by coastal shipping and inland waterways. Coastal shipping and inland waterways are two modes that are cost-efficient and environment friendly, but are currently rendered unattractive due to a relatively restrictive policy regime and market dynamics. Coastal shipping requires very simple in-


frastructure, unlike ocean going vessels, with provision for smooth transfer of cargo between coastal ships and ocean going ships. Most major ports are ill-equipped as far as providing infrastructure to coastal shipping vessels is concerned. Ocean going vessels and coastal shipping vessels are treated at par and ports do not differentiate between them in terms of port charges. This is not conducive to the

Recommendations foR

incubation of an industry which is in its infancy.

Multimodal transportation India will need to focus on multimodal transportation to facilitate movement of goods from inland locations to ports and vice-versa. The country needs better road and rail infrastructure, improvement in multimodal connectivity and modifications in procedural arrange-

ments to allow smooth flow of traffic over multiple modes. The government's decision to allow private participation in container transportation by rail is a welcome move and private investors and operators have responded with enthusiasm. However, the government will have to develop legislative infrastructure and promote development of greater physical infrastructure to allow these private players to gain reasonable scale.

international Sector

policy

reduce cost Of indian Flag current Status While shipping is a global industry, the cost of the Indian flag is very high compared to international shipping hubs. This is due to high direct and indirect taxation leading to higher costs to the end user/ charterer who chooses Indian flag vessels.

recommendation The cost of the Indian flag should be brought at par with those of developed maritime nations such as Singapore. Freight rates to be moderated, possibly by cargo arrangements made through Transchart.

rationale This will balance the objectives of maximizing cargo transported

under the Indian flag vis-Ă -vis globally competitive freight rates to the end-user. It may be observed that the high cost of Indian flag vessels is due to the current taxation regime of high direct and indirect taxation. Despite the introduction of tonnage tax in India (which brought in an alternative lower taxation rate in lieu of corporate tax), there are around ten other direct and indirect taxes that translate into a substantial disadvantage to Indian shipping companies vis-Ă -vis their foreign counterparts. This obviously affects the competitiveness of Indian shipping companies, and in turn, their ability to invest in growth and diversification of their fleets. Hence, it is imperative that required changes in the taxation policy i.e. exemptions / reductions of various direct / indirect taxes as relevant be considered favorably on a priority basis.

infrastructure Status Of indian Shipping current Status Tax benefits available to infrastructure sectors are not available to the Indian shipping industry. If the ports sector is to grow, relevant authorities need to pump in significant additions to capacity to meet expected demand.

recommendation Extend Infrastructure status to the Indian shipping industry. INDIA |

November 2010 | www.logisticsweek.com

41


< Special Feature rationale

rationale

Shipping is a capital intensive business and subject to extreme business cycles. Infrastructure status would enable cheaper loans as well as improved gearing (debt:equity ratio) to ship owners so that they are able to sustain the high capital investment in periods of economic downturn.

Globally, input services for the shipping industry are not subject to service tax, whether such services are availed domestically or internationally.

Fiscal

exemption From Service tax current Status Service tax is levied on various services availed by shipping companies including some on reverse charge basis.

recommendation An infrastructure status on shipping would help sustain the high capital investments of ship owners.

Exemption from service tax on around 27 major services including ship management, manpower recruitment, brokerage etc. as well as some on reverse charge basis availed by shipping companies so as to remain competitive.

tonnage tax: Mat on profits on sale of ships current Status The book profit on the sale of qualifying ship (which reflects the present value of the profits likely to be generated over the balance economic life of the ship) is currently not covered as relevant shipping income under subSec.115VI (1) (i). Also as per Sec115VN, any profits or gains from transfer of qualifying/capital assets are chargeable to income tax under Sec.45 to 51 of the IT. Act. Due to the 'block of assets' concept though this may not affect the tax computation under normal circumstances, it affects tax computations for the purposes of MAT under Sec.115JB of LT

Act since the profit on sale of ship will form part of 'book profit.'

recommendation Book profit on sale of qualifying vessels should not be subjected to MAT but may be treated as arising from core activities of a tonnage tax company. Hence it may be covered under Sec. 115VI by adding a new sub-clause to subsection (2) as under: “(iii) surplus or deficit on sale of qualifying ships.”

rationale Sale/purchase of ships are intrinsic to industry's core business – i.e. to meet the changing global trading pattern, to comply with international maritime laws and to ensure economic viability due to technological advancement. Based on this, major maritime nations like UK, Ireland, Singapore, and Netherlands have covered profit on sale of vessels in their TT regime. Profit on sale of ship on forming part of relevant shipping income would attract provisions of Sec.115VT(1), viz. compulsory transfer of profit to TT reserves, thus leading to a further growth in tonnage.

tonnage tax: interest earned on tt reserve current Status Interest earned on TT reserve is treated as pure income and currently taxed at the corporate income tax rate.

recommendation Interest earned on TT reserve needs to be treated as income from core activities. In Section 115VI after sub-section (2)(B), the following may be inserted: '(C) interest earned on funds deployed out of unutilized amounts standing to the credit of statutory reserves created under Sec.115VT at the beginning of the relevant previous year.'

42

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November 2010 | www.logisticsweek.com


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< Special Feature rationale The Indian TT scheme has the unique feature of compulsory creation of reserves to be utilized only for tonnage acquisition. While waiting for an opportune time to acquire the assets, the interest generated needs to be treated as core income which would further attract provisions of Sec.115VT(1) viz. compulsory transfer to tonnage tax reserve for buying ships. Moreover, DTAs with countries like Belgium, China, Denmark, Germany, Netherlands, Malta, S. Africa, UAE, US, etc. have treated interest on funds as income from shipping operations.

Seafarers taxation: Shortage of manpower current Status

in respective Double Tax Avoidance Agreement (DTAAS).

Indian ships face an acute shortage of trained/qualified and experienced manpower, especially in the officers' category, because of the drift of personnel from Indian flag ships to foreign flags under the lure of 'taxfree' pay packets arising out of certain unintended differential domestic tax treatment. Presently, there are around 40,000 Indian officers in the Nautical and Engineering categories and 80,000 Indian crew in the ratings category working on both Indian and foreign ships, with about 75 percent of them serving on foreign ships. A recent BIMCO/ ISF study has predicted a global shortage of 25,000 qualified and experienced seafarers in the officer and engineer categories by 2015.

recommendation

recommendation Proposal 1: Income generated by seafarers on board Indian vessels whether operating on the Indian coast or international waters may be treated as tax free. Proposal 2: Since the above measure would require legislative amendment, in the interim period MoF may issue a clarificatory circular to supersede the CBDT circular 586 of 28-111990, by estimating that seafarers stay out of the country on the basis of dates stamped on his/her passport/CDC.

rationale Such a measure will help minimize the attraction of foreign flag vessels, which in turn will help improve manpower availability for Indian shipping.

Direct tax: Withholding tax on ecB interest current Status

There's a global shortage of 25,000 qualified and experienced seafarers across various categories.

44

INDIA |

Interest paid to foreign lenders is subject to withholding tax at the rate of 20 percent which may be reduced to 10-15 percent as provided

November 2010 | www.logisticsweek.com

Restore exemption u/s.10(15)(iv) of I.T. Act

rationale Shipping is a global industry and the purchase of ships is financed with significantly high gearings. Since 75-80 percent of the funding for ship acquisitions is through foreign lending, withholding tax on interest payouts to foreign lenders by Indian borrowers increases the cost of borrowings.

indirect tax: customs duty on repair material current Status Exemption from customs duty on direct import of repair materials by shipping companies for repairs in India.

recommendation As in the case of ship repair units, shipowners may be permitted to import spares and repair equipment directly for carrying out repairs in India without being subject to payment of customs duty.

rationale Treatment of shipping companies and ship repair units should be at par in the context of the purchase of imported spares and repair equipment for ship repair purposes.

Service tax: input services current Status Service tax is currently imposed not only on various services availed by the Indian shipping companies domestically, but also on some of the crucial services availed by them, even outside the country. Although with the introduction of the Taxation of Services (provided from outside India and received in India) Rules, 2006, certain services received



< Special Feature

as in the case of ship repair units, shipowners may be permitted to import repair equipment directly for carrying out repairs in india without payment of customs duty. by shipping companies outside India are exempted, there are still a few services, including some on reverse charge basis, on which Indian shipping companies suffer tax.

recommendation

The shipping industry is asking for zero rated service tax on certain input services like brokerage, general insurance, ship management services and manpower recruitment.

Service tax on the following input services should be zero rated for shipping companies: (i) Brokerage, commission and finance charges (ii) general insurance services including Protection & Indemnity (P&I) insurance (iii) ship management services and (iv) manpower recruitment and supply agency services.

rationale Globally (especially in major maritime jurisdictions like the UK, Sin-

gapore, Netherlands, Greece etc.), taxes relating to the shipping industry are either zero rated/exempted, whether such services are availed domestically or internationally by a non-resident or resident shipowner. The government has, by introduction of Tonnage Tax, recognized the need to create tax parity with other shipping jurisdictions to create competitiveness in this industry. It is essential that this philosophy is also extended to create a comprehensive zero rating of indirect taxes for the industry.

pends heavily on long-term debt to fund its capital investments, and therefore the requirement for debt to fund the above expansion is very large. Since there is no established ship finance institution in India, Indian shipping companies have tended to source funds from international lenders. However, the meltdown in global financial markets in 2008 has severely constrained the availability of credit from international banks to provide long-term funding to capital intensive assets like ships.

access to competitive Funding current Status

recommendation

The working group of the Eleventh Plan in its third scenario has placed an expansion target of 15 million GT to be achieved by the end of the Plan for the Indian shipping industry. As estimated by an SBI Capital Markets report, it presently entails a cost of Rs.38,100 crore for acquiring additional tonnage of approximately 9.72 million GT after taking into account the scrapping of 4 million GT due to old age/IMO phase out regulations. Being a very capitalintensive industry, shipping de-

The government could establish a Shipping Modernisation Scheme, in line with the recommendation in the SBI Capital Market's report, on the lines of the Technology Upgradation Fund Scheme (TUFS) for the textile industry. The details of the scheme are as follows:1) Loans provided by Indian banks or other agencies will be eligible for interest subvention 2) Interest subvention would be available on a total loan amount of up to Rs. 26,670 crores, used for acquisition of shipping assets 3) The interest subvention would be at 5 percent p.a. of the loan amount, for up to 10 years from the full drawdown of the loan 4) It is expected that tax inflows from the additional acquisitions would compensate for the interest subvention provided, and that the scheme would have a positive Net Present Value (NPV) for the government.

rationale This scheme will help in ensuring the targeted expansion in the Indian shipping industry through the availability of credit to Indian shipping at a reasonable cost. This is the first of a two-part article, which will be concluded in the next issue.

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< feature

WAREHOUSE DESIGN

Finding Optimum Storage Solution Sugato Chandra, President (Projects & Technology), M. J. Logistic Services Ltd., explains that optimization of storage capacity takes center stage when designing a logistics center.

48

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W

ith ever increasing land prices and high investments that are required to make storage and material handling equipment in a Logistics Center (LC) or a ‘Hub’, the need to find optimum storage solutions is paramount. Every stakeholder profits from a well designed LC, be it the owner/investor, the Logistics Service Provider (LSP) or the service user. Hence the methodology involved in designing an LC is a complex and resource intensive process (See box: A Simple Depiction of A Logistics Center).

rules to Know Creating a complete material and operational ow that meets the throughput requirements is the main objective while building a warehouse. In the process, the space as well as material handling productivity must also be enhanced. These are however traditional design objectives. Ergonomics is one of them and it refers to creating an environment for people which is safe, but at the same time helps in improving the productivity. Product safety in terms of both storage and handling is another. But the most important addition is the concern for sustainability. Efforts are being made to reduce carbon foot print, increase the use of renewable energy and conserve natural resources in the supply chain. Many MNCs already have a clear mandate on these as a part of their global policy. Therefore, use of sky-lights to reduce dependency on artificial lighting, installation of CFL, LED and solar powered lamps instead of incandescent / fluorescent lamps and rain water harvesting systems etc. are common in the new warehouses and distribution centers in India today. At this rate India will have its first Green LC very soon.

November 2010 | www.logisticsweek.com


Design: Do’s and Don’ts As we can see there are many variables and constraints involved in designing warehouses, each of which need to be carefully considered and analyzed. Modern simulation software is of great help here. The entire simulation exercise, right from model building, defining the process constraints and establishing the input and output parameters to analyze the results and optimize the performance, all call for special skills and expertise. To aid this there are specialized people and organizations that offer these services at a cost effective price in India today. A word of caution in this regard would be not to adopt the ‘best practices’ of the developed nations blindly while designing a hub in India. Our business practices and ground realities are very different from them and can change the design parameters significantly. Some examples of issues that crop up in this regard are - how much should the receipt staging area be when majority of goods are moved in a non palletized load by trucks of varying shapes and sizes? How many dock levelers would be needed? How does the planning for receiving take place when Advance Shipment Notice (ASN) is virtually nonexistent, especially in domestic procurement and distribution? How to overcome the poor use of IT at the back end?

optimum Storage Capacity The following example will help understand storage capacity utilization clearly: In order to find out the optimum cube utilization, we must first look into the pros and cons of three commonly used racking systems viz., Selective Pallet Racking (SPR), Double Deep and High Density / Drive in. Very Narrow Aisle (VNA) and Automated Storage & Retrieval Systems (AS/RS) are out of the purview due to their rarity in India and exorbitant costs. (See table: Pros and Cons of Racking Systems) Please note that the floor area utilization under SPR can be improved by over 20 percent if Reach Truck is used instead of CBT which requires a wider aisle space to operate. High density/Drive in racks offer significant improvement in cube utilization; hence the aim will be to use it for storage as much as possible in the limited SKUs. Interestingly, drive-in racks can also be used effectively in the receiving or dispatch area. For example, a large warehouse where incoming goods peak at a certain time of the day and the receiving process takes time due to quality inspection, high density racks can hold the inventory truckwise, very effectively. Similarly an export warehouse can aggregate all the items, destination wise and container wise at the dispatch staging area using Drive in racks. INDIA |

November 2010 | www.logisticsweek.com 49


< feature Now for the regular storage using SPR, the choice, therefore, is between A. Use CBTs for material handling in a LC with 8M height, both of which tends to lower total invest-

ment outflow, or B. Build a LC with a height of 12M and use combination of Reach trucks & CBT to reduce the unit cost of storage. For a LC with a size of 9,324 sq mt

the comparative cost under both the scenario will be as shown in Fig 3 (Comparative Cost of an LC). Although the total investment under option B is higher by over Rs 64

Pros and Cons of racking Systems Parameters

SPr

Double Deep

Drive in

Picking selectivity

Good

Limited

Average

Accessibility

100%

50 pc

25-30 pc

Stock Rotation

Good

Average

Limited

Max. storage height

12M

10M

9M

Floor area utilization

30 pc

40 pc

60 pc

MHE required

Stacker/CBT / Reach truck

Special reach truck with CBT / Reach truck telescopic fork

Industry application

Practically all industry

Mainly in Cold stores

a SimPle DePiCtion of a logiStiCS Center

Goals & Objectives Service level, Inventory level, Automation level, Investment budget, ROI, Visibility & Sustainability

Receipt Throughput Master Data SKU Transaction Data

Storage Requirements Value added activity Order Picking Needs

Master Plan- High Level Design Options & Cost •

Area – Land, Building & Utilities Equipments – Storage & Handling Processes – Men, Materials & IT systems

Simulation to validate & optimize   

Warehouse Equipments Processes

Despatch Throughput

Constraints Site location, topography & soil conditions, Environment, Statutory permissions & limitations, Business processes & Resource availability

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Limited product type

November 2010 | www.logisticsweek.com

Final Plan • •

• •

Detailed drawings Specificat ions & BOQ Budget Timeline



fig 3: Comparative Cost of an lC options >

8m with CBt

12m with rt

Total # pallet

5,640

14,830

investment in (amt in ` mn)

(amt in ` mn)

PEB

48.6

63.4

Civil

33.1

41.7

Electrical, Fire 25.5 Fighting & Lighting etc

27.6

Storage & MHE

35.1

73.9

Total Investment

142.3

206.6

million, the unit cost per pallet comes down by 45 percent due to improved use of the vertical storage space as well as narrower aisle space. Please note that the cost of land has not been considered in the above example as it varies widely from one place to another. Should you decide to factor in the investment in land then the case becomes even stronger for utilizing vertical height to the maximum possible.

Bottlenecks to Progress Most of the large warehouses are constructed away from the city or municipal limits in a ‘decontrol’ area where one can build almost anything as long as the village panchayat has no objection. This is prevalent throughout India. The reason for this is the traditional mindset of landlords and owners to build as much as possible as more the warehouse area, more the rental income. A ground coverage of 70-80 percent for the warehouse building is not an exception. In any case, all trucks both loaded and empty are to be parked outside on the road. Taller warehouses are not built as rent is paid on per square foot basis. Many companies are willing to sign long term lease agreements for their warehouses but are averse to invest in storage and material handling equipment. The landlords are also not comfortable investing in such equipment as they do not know what to do with them, should the company decide to terminate the contract prematurely. Contracts with a ‘lock in’ period covering the entire life span of the equipment are yet to be seen. But fortunately such archaic ideas are changing. The new LCs that are being built by many third party logistics service providers in India adhere to the various norms with respect to ground coverage, maximum height, fire safety, seismic zone parameters, etc. as prescribed by the local authorities or the National Building Code. The cube space for storage that will be available for a given parcel of land can thus be accurately ascertained.

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< primer

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

Two-Bin Technique

I

n terms of inventory, one of the most critical decisions for supply-chain planners is deciding when to place an order. The timing needs to be perfect in order to avoid stock-outs. ‘How much to order?’ is invariably a very crucial decision. Most current systems are based on the Materials Requirement Planning (MRP) method; however there are several other methods that planners can use. The Two-Bin Technique is one of the many methods used to decide when to

place an order, which also helps to keep a check on the quantity. As the name suggests, the technique consists of two bins. The first bin contains a quantity of material that can be used without any replenishment-ordering, while the second bin contains the material that is needed during the lead time for the replenishment order, plus any safety stock. When the replenishment order is received, the material is divided into two quantities for the two bins and the process begins again.

Airway Bill

A

n Airway Bill is a bill of landing for air transport. It serves as a receipt for the shipper, thereby indicating that the carrier has accepted the goods listed, obligating the carrier to carry the consignment to the airport of destination. It consists of a set of forms, following the IATA form issued by the airlines. Each of the forms has on it a serial number, name and an identification number of the issuing airline.

An Airway Bill consists of a set of three originals — the first copy is retained by the airline after it is signed by the shipper. The second one is forwarded to the consignee, signed by the shipper and the carrier. The third one is returned to the shipper duly signed by the shipper and the carrier, on receipt of the goods. Apart from these, extra unsigned copies are kept for forwarders, agents, etc.

Total Quality Management

T

otal Quality Management (TQM) is an approach to management that originated in Japan. In management, TQM is defined as a total organizational approach for meeting customer needs and expectations that involves all managers and employees in using quantitative ways to improve the organization’s processes, products and services. This approach, that dates back to the 1950s, is used in logistics today as a concept whereby organizations pay more emphasis on the quality of the warehouse and its operations and aim at long term success through

customer satisfaction and other benefits to the members of the organization, society and environment. It has had an indelible impact on the logistics industry since adoption. TQM’s main focus is to eliminate waste and reduce production of defective items during manufacturing. An integration of the relationship between the suppliers and buyers in order to finally reach the consumers is another area of focus. TQM has helped raise the bar of quality standards with respect to all warehousing operations.

The system can minimise stock-outs

The main advantage of the Two-Bin Technique is that it requires no record keeping at the facility using it. It also leaves a minimal chance of stock-out because by the time supplies are over in the second bin, the replacement bin would already be ready for use.

Jidoka

T

his concept, also known as autonomation, was established by Sakichi Toyoda, founder of the Toyota Group at the turn of the 20th century when he invented an automatic loom that stopped the shuttle if any thread broke. This permitted one operator to oversee many machines and avoid the risk of producing large amounts of defective cloth, thereby giving human judgment a place in the functioning of automated equipment. Toyota has successfully been using this mechanism. This method is designed to detect abnormalities and to stop whenever abnormalities occur. Toyota also authorizes its machine operators and other members of its production team to stop production whenever they note anything suspicious. In logistics, particularly, Jidoka is used for any stoppage during production in order to avoid manufacturing defective products. Jidoka, apart from adding human judgment to automated equipment, helps produce equipment of high quality with minimum chances of breakdown. In turn, the costs are kept low and the lead time minimum.

Can you help us with more such terms – used everyday but seldom revisited? Please mail your suggestions to aanand@logisticsweek.com. If chosen, we will be happy to publish your suggestion with due credit. 54

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November 2010 | www.logisticsweek.com



< PAnoRAmA OFF THE SHELF

Building By Logistics

I

n their book, “Managing Construction Logistics”, the authors point out how effective logistics can benefit the construction industry to improve its bottom line. The general image of the industry can be improved by reducing transport movements, tying up less money in stock, creating less waste, using skilled craftsmen to reduce cost of projects, reducing construction time, reducing risks to health and safety, and improving environmental performance. The authors offer practical ways of achieving these benefits through integrated project teams and supply chains and the increased adoption of information technology including electronic communications, bar coding, and electronic

tagging for tracing products. Citing statistics from a report, ‘Improving Construction Logistics’, published by the Strategic Forum for Construction, the authors highlight how poor logistics is costing the construction industry at least £3 billion a year. Inadequate management of logistics also has an adverse effect on quality, causes delays to projects, and adds to the health and safety risks on site. managing construction Logistics By Gary Sullivan, Stephen Barthorpe, Stephen Robbins Publisher: Wiley Price: `3,750

Adapt Or Perish

T

he authors, Dmitry Ivanov and Boris Sokolov, aver that recent transformations in the world’s economic environment has necessitated re-thinking of supply chain management (SCM) goals and decision-making techniques. “Adaptive Supply Chain Management” develops fresh viewpoints on the SCM goal paradigm, problem semantics, and decision-making support. Drawing upon years of research and practical experience, and citing numerous examples, the authors unite conceptual considerations of supply chains with a constructive level of engineering and solutions to real-world problems.

The book provides insight into the dynamics, complexity, and uncertainty in supply chains from the perspective of systems analysis, control theory, and operations research. It also looks at supply chain adaptability, stability, and crisis-resistance. Readers are also provided with a comprehensive view of advanced SCM concepts, constructive mathematical techniques and models. Adaptive supply chain management By Dmitry Ivanov, Boris Sokolov Publisher: Springer Price: `8,000

When Postponement Is Good

P

ostponement in supply chain management (SCM) is a deliberate action to delay final manufacturing or distribution of a product until receipt of a customer order. Strategizing it insightfully reduces the incidence of wrong manufacturing or incorrect inventory deployment. The authors have taken pains to explain how postponement strategies and practices reduce the anticipatory risk in a supply chain and on how it can be fine-tuned so that inventory pressures can be reduced. At its core, the book analyzes how both pull postponement strategy and form postpone-

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ment strategy can be leveraged to yield benefits to adopting firms in different challenging environments. The book is intended for researchers in supply chain management and also for practitioners trying to understand the workings of postponement strategies for successful implementation at their firms. Postponement strategies in supply chain management By T.C Edwin Cheng, Jian Li, C.L. Johnny Wan, Shouyang Wang Publisher: Springer Price: `6,200

November 2010 | www.logisticsweek.com


BLoGosPHeRe 3PLs and the It gap: Perception or Reality? Blogger: Adrian Gonzalez In his blog, Gonzalez discusses the gap between 3PLs and IT. Satisfaction levels between 3PLs and IT solution providers have not been a bridging one, but one that fluctuates time and again. For years, software vendors and industry analysts have been pointing to this gap as evidence that 3PLs need to invest more in technology. But this gap has created a wrong perception in the market that 3PLs are not innovative when it comes to technology. According to Gonzalez, this is untrue because there are many service providers that view technology as a strategic asset and competitive differentiator. search tags: 3PL, IT gap, Adrian Gonzalez

Defense supply chain - A few challenges in India Blogger: Himaghna Dey sarkar Sarkar says that the heart of the defense industry is its supply chain. This industry is highly inter-dependent and inter-related on a number of suppliers. As majority of defense related products involve a large number of components, systems and sub-systems many OEM’s don’t own the complete product lifecycle. The OEMs take care of the initial designing, integration and assembly of the product depending upon multiple suppliers positioned at different tiers of the supply chain. He further states that in order to maximize profits it is important to optimize sourcing methods and align all parts

By Highjump Software Highjump Software in their study realized that payroll is typically the largest single expense in a warehouse. Due to this, many companies have undertaken projects to utilize warehouse management systems (WMS) and other technologies to do more work in less time. While directed and verified work direction raises efficiency levels, it does not really streamline work performed. Many businesses do not have complete visibility of the work their employees carry out on a daily basis. They balance the need to meet tight customer deadlines with ensuring that employees are punctual. Interestingly, labor management systems (LMS) have enabled businesses to use labor resources efficiently, maintain profit margin expectations and gain a competitive edge. Many businesses are also looking to these systems as a foundation for

Weight a moment Blogger: oliver evans Oliver Evans writes his thoughts since Solar Impulse broke the news of performing the first night flight ever by a solar-powered plane. First thoughts are this news could pose no significance to the air cargo industry except for the fact that the wingspan of the solar-powered plane and an Airbus A-340 is almost the same. In 2013, Solar Impulse plans a round-the-world-trip with four engines, each of which provides the 10 horsepower the Wright Brothers had at their disposal in 1903, though not powered by jet fuel but by 11,628 solar cells. Cargo 2000 and eFreight, among other initiatives, are destined to reduce the carbon footprint of the air-cargo industry. Though we may never see a solar-powered freight plane, Solar Impulse stands as a symbol of what is possible, and necessary, in the battle against global warming. search tags: weight moment, Oliver Evans

Journals, Case Studies, Research Reports

ResouRce centeR Labor Management

of the supply chain in a geographically, economically and strategically correct manner. The main activities in this supply chain broadly range from identifying the needs and requirements, product or service conceptualization, identifying suppliers, procurement, manufacturing/assembly, logistics & delivery, on-field customization and pre-sales and post-sales support. Sarkar says that whoever takes the lead will not only make a mark in this industry in India but it will create rippling effects globally. search tags: Himaghna Dey Sarkar, Defense, Supply Chain

improved workforce management and cost reduction—whether they already have a WMS or not. Labor management has become the next logical step for businesses in search of new efficiencies. Search Tags: labor management, highjump software

Information Burden By Volvo During a study conducted in-house, Volvo realized that modern trucks are equipped with increasing numbers of warning and safety systems designed to help the driver handle critical situations on the road. However, there is a risk that these systems might actually have the opposite effect – the driver may suffer information overload, leading to incorrect decisions. Driving a heavy vehicle in congested traffic while hauling a valuable load, and at the same time keeping a watchful eye on the clock to meet agreed delivery times

INDIA |

and adhere to legislated driving and rest times, can be highly stressful especially when driving in unfamiliar areas. Furthermore, in recent years the truck cab has developed into a mobile office where the driver receives transport orders, text messages, phone calls and emails from customers and the traffic office - all while on the move. In addition, today the GPS navigator, traffic information via radio and the vehicle's in-cab diagnostic system are all regular information sources - which may also contribute to information stress and, ultimately, impact traffic safety. Marjukka Sagesjö at Volvo Technology is working with HMI (Human Machine Interface), on a system known as DIS (Driver Interaction Support), whose aim is to prioritize the information that the vehicle's various systems transmit to the driver. Search Tags: Information burden, Volvo

— Compiled by Frewin Francis

November 2010 | www.logisticsweek.com

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New Products, Technologies, Solutions

High-speed Positioning system

T

he High-Speed Positioning System from Bosch Security Systems, Inc. has been designed for tracking fast-moving objects with high-resolution optics. The system combines a fast and precise pan-tilt-zoom with Bosch's best-of-breed day/night cameras that provide crisp imaging in any lighting condition. Night-time surveillance is made easy with an optional pair of Bosch 3D Diffuser infrared illuminators. The High-Speed Positioning System Standard Series delivers 360o continuous rotation at speeds up to 100o per second and 130o of tilt at up to 40o per second. Automatic lens scaling keeps zoom and speed synchronized. Autopan and preset tour functions remove manual steps in critical situations and are accurate to within 0.02o, enabling operators to call-up crucial images with speed and precision. The Dinion 2X Day/Night cameras available with the High-Speed Positioning System Series produce sharp, detailed images and outstanding color reproduction in even the harshest natural or artificial lighting. The cameras' 2X-Dynamic technology and dual exposure sensors analyze images pixel-bypixel to produce the most detailed view of

scenes with difficult lighting. In addition, Auto Black delivers clear images in high or low contrast scenes, while SensUp dynamically adapts to lighting changes and boosts night-time performance. The High-Speed Positioning System IR360 Series adds UFLED Infrared Illuminators for up to 1,010 feet and 360o of enhanced nighttime surveillance without the need for rotating cables. With 3D Diffuser Technology, the illuminators enable crisp images that are evenly-lit throughout the foreground and background of the scene. Featuring Constant Light, UFLED illuminators overcome naturally occurring LED degradation to deliver a consistent level of lighting performance throughout their lifetime. An IP 66-rated casing completely encloses the system for improved operation and easier installation. A sunshield and integrated wiper also provide a clear view regardless of weather conditions - an important feature for monitoring outdoor and industrial sites. High-Speed Positioning System series can be operated with Bosch DiBos and Divar Digital Video Recorders, the Allegiant Video Control System, and integrated with Bosch's IP video products.

Freshness Indicator

T

emperature indicator is an offering from the Norwegian “green packaging” start up TimeTemp, used for indicating flexible freshness of food, pharmaceutical, and chemical industries. The freshness indicators are based on non-toxic chemical liquids reacting and changing color according to the time and temperature they are exposed to. This enables an easy quality control at every checkpoint in the value chain enabling problems to be identified where they arise. This works as an assurance for each link in the value chain where the indicator shows remaining shelf life up

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against agreed industry standard upon the arrival of goods. TimeTemp’s freshness and quality indicator provides benefits throughout the entire value chain. Freshness indicators will cut costs for producers and retailers by reducing waste, and increasing focus and knowledge on temperature control, quality and food safety. For the producers TimeTemp’s indicators will facilitate improved product quality and customer/consumer satisfaction. For consumers the indicators will, virtually with no sacrifice or effort, increase lifespan of purchased food and reduce food disposals.

November 2010 | www.logisticsweek.com

Logition

S

iemens calls the Logition a complete intra-logistics solution. It can be employed at partly or highly automated plants. Logition, with its suite of solutions, lets customers choose precisely the right package of solutions for their needs. Some technology that can be bundled along with Logition include applications for intralogistics IT, automation, drive technology, sensor and actuator systems, power supply and building technology. Logition enables seamless integrates with solutions from mechanical engineering part-

ners and special IT components. The system also offers a warehouse management system, which can be integrated with ERP solutions from vendors like SAP amongst many others. Other features include liability and traceability tools enabled by RFID, incorporated into the application suite.


GET YOUR FREE COPY OF WAREHOUSE HANDBOOK Ma y ww 200 9 w.l og-i n

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warehouse, to storage and material handling, information technology and automation of a warehouse and the grossly neglected area of security. Whether you are in the boardroom or on the warehouse floor, this handbook aims to set you thinking about new concepts in warehousing and the urgent need to incorporate them in your business.

INDIA

Page 34

VITAMIN M 26

BACKING UP 32

FUEL SUPPLY 46

Few realize the role maintenance plays in transporters’ profit margins

How reverse supply chain can make or break a company’s position in the market

Exploring oil-andgas upstream and midstream supplychain biz

The Warehouse handbook In a business environment which is slowing edging towards positivity, The Warehouse Handbook will be a welcome reference tool for the logistics and the supply-chain industry. Also, with the passage of the much-awaited GST in April 2010, warehouses will move several steps up to highly automated Distribution Centres which will impact industry’s bottom-line. The Handbook will thus give a new perspective on the subject and enable industry to streamline its operations and processes. The various chapters of the book have been written by noted specialists in the industry with the sole purpose of removing nebulousness from major aspects of the logistics business. The handbook covers the entire gamut from the present state of the industry, site selection, design and processes of a

reas is a on good to do it.

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New Products, Technologies, Solutions

touch Panel computer

T

he DC2 is MEN's first panel PC with capacitive touch suited for harsh and mobile fields of application. In contrast to additional panel PCs, this display computer is fanless making it maintenance-free. The DC2 comes equipped with a 10.4”LCD TFT display with a 4:3 aspect ratio and a resolution of 1024 x 768 pixels. The capacitive touch panel has a response time of approx. 25 ms. The panel computer is controlled via an Intel Atom XL Z520PT processor with a frequency of up to 1.33 GHz and a power consumption of 12 W. A 1 GB DDR2 SDRAM memory and a 2 GB MicroSD card offer enough memory capacity for most user applications. Standard I/O comprises 2 Fast Ethernet and 2 USB ports as well as four binary inputs

via the 10-pin power supply connector. The Ethernet interfaces have switch functionality to provide Ethernet connection to subsequent intelligent displays.

The unit's control electronics are directly attached to the back of the display.

second Locomotive From Voith turbo

G

ravita 15BB from Voith Turbo is their second locomotive from the Gravita range with central driver cabin. The locomotive is suitable for both shunting and mainline service. The 15BB’s engine with its output of 1,500kW (optionally 1,800kW), a tank volume of 5,000liters and an unconstrained curve radius of 80m, makes is suitable for light mainline and heavy shunting service. Optional country-specif ic equipment such as radio systems or train protection installations makes the Gravita suitable for international applications. The locomotive meets the current emission limit in terms (TSI Noise) and exhaust gases (Stage IIIA). An optional start-stop system reduces fuel consumption during idling phases. Additionally, two speed regulation systems assist the engine driver in always adopting the most economical driving style.

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November 2010 | www.logisticsweek.com

Further options like using M12 connectors, changing the processor, connecting additional interfaces, a GPS adapter or HD audio can be realized according to the customer's wishes. A MiniPCI Express card slot with an external antenna can be used for wireless functions like WIFI, WIMAX, GSM/GPRS and UMTS. The DC2 is equipped with a 9 to 36V wide-range power supply and able to operate in a -40 to +70°C environment (+85°C for 10 minutes). All components are soldered to withstand shock and vibration and are prepared for conformal coating. The panel computer is prepared for the e1 automotive certification and also corresponds to railway standard EN50155 with an additional power supply unit.


THE WAREHOUSE HANDBOOK- II : Managing Change LOG.INDIA and DIESL presents you a updated handbook on the Warehousing Industry which would cover the entire spectrum of Indian market Are we ready to embrace various tectonic shifts that are happening in the warehousing sector -in policy (GST), in client expectations, in infrastructure, in technology, in scale of operations, in risk management, security issues, in automation, etc. So the tentative topics covered in the handbook will be as under

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India’s Warehouse Landscape: A reality check

GST: Are we ready?

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INDIA

INDIA


< EVENTS

A PUBLICATION OF DVV MEDIA GROUP

November 2010 10 and 11 november 2010 2nd Global mininG Summit Hotel Hyatt regency, Kerala The Indian mining industry is endowed with a rich resource base of several major minerals and has opened up massive opportunities for international mining equipment and technology solution providers. The 2nd Global Mining Summit, organized by Confederation of Indian Industry (CII) in co-operation with the Ministry of Mines, will take place on 10th and 11th November 2010 concurrently with the 10th International Mining and Machinery Exhibition at Hotel Hyatt Regency, Kolkata, India. The 2nd Global Mining Summit will provide a forum for discussion, debate and exchange of knowledge and will prove to be a meeting and marketplace for all stakeholders involved in the mining, construction, industrial and power generation industries. The summit will focus mainly on investments in exploration, policy frameworks, best practices for achieving high growth in mining, the role of financial institutions for developing the mining sector, environmental and safety issues. Organized by: Confederation of Indian Industry, New Delhi Tel: +91 11 24653071 11 – 14 november 2010 Cera GlaSS india 2010 export Promotion industrial Park (ePiP), Jaipur The Indian Ceramic Industry ranks at 8th in the world and produces around 2.5% of global output. The industry has its own inherent advantages as all required input materials are available in India as well as value addition and wealth creation is very high. The industry is poised to grow at an unprecendented rate and it offers tremendous potential for development in the coming years. In order to provide market access, technology transfer and Investment in this sector, the Rajasthan State Industrial Development & Investment Corporation Ltd. (RIICO), Confederation of Indian Industry (CII) Northern Region and Indian Ceramic Society, All India (ICS) has brought together CeraGlass India 2010. CeraGlass India 2010 is a comprehensive Ceramics & Glass show being held in India. It will showcase the latest in Ceramics, Glass and Allied Products manufactured in India and abroad, making it a very significant platform for business partnerships worldwide. Organized by: Confederation of Indian Industry, Chandigarh Tel: +91 172 5080122 / 2607228 12 and 13 november 2010 india Cold CHain exPo ashok Hotel, new delhi

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The India Cold Chain Expo - ICE offers a global opportunity to present product and service information to the largest concentration of public refrigerated warehouses, refrigerated logistics, refrigerated construction and refrigerated transportation. The expo will be a global opportunity to present product and service information to the largest concentration of public refrigerated warehouses, refrigerated logistics, refrigerated construction and refrigerated transportation. Organized by: Global Cold Chain Alliance Tel: +91 9899 862848 18 – 20 november 2010 Wire & Cable india 2010 bandra Kurla Complex, mumbai Wire & Cable India 2010 is an event providing a platform to showcase the latest machinery, equipment, raw materials and accessories required by the Indian wire and cable manufacturing industry. Besides participation of the Indian wire and cable industry and many international companies, the exhibition will welcome national groups from Austria, Germany, Great Britain, Italy and North America (Canada and USA) as well as from China and Taiwan. Messe Düsseldorf, with its subsidiary, Messe Düsseldorf India, will be responsible for bringing in exhibitors from India and from all over the world. CII, the founder of Wire & Cable India, will remain the co-ordinating partner with a strong commitment to visitor promotion and to the organization of the international conference. The government of India has begun to focus primarily on public private partnerships with major infrastructure projects. With an investment need of about $450 billion until 2012, the infrastructure construction is the growth engine for the construction industry, especially for the development of the transport sector. Organized by: Confederation of Indian Industry Tel: +91 22 6661 1689 19 – 21 november 2010 auto Serve Chennai trade & Convention Centre, Chennai Auto Serve is the 4th edition of the Auto Serve series of events for the automotive aftermarket business of India. Auto Serve 2010 is India’s focused event on automotive care, maintenance, service, parts and garage equipment. The 4th edition of Auto Serve is scheduled to be held from 19th – 21st November 2010 at Chennai Trade Centre, Chennai. CII through Auto Serve forum has been playing a vital role in developing and providing a ready to use marketing and educational platform for the growing automotive aftermarket business in India. Organized by: Confederation of Indian Industry, Chennai Tel: +Tel:+91 44 42444555

November 2010 | www.logisticsweek.com

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