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PERSPECTIVE THE NEW NORMAL
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Supply Chain Challenges in Emerging Markets
All about Transportation, Distribution & Infrastructure
Volume 4: Issue No.8 * December 2013 Editor in Chief
Raj Misra firstname.lastname@example.org
Ritwik Sinha email@example.com
Circulation & Distribution Legal Advisor
INDIA SOUTH AFRICA
N Raju firstname.lastname@example.org
Our Bureau Mumbai
Sudhir Kumar Hyderabad
Editorial Advisory Board Paul Lim Founder & President, Supply Chain Asia Pawanexh Kohli Principal Advisor, Cross Tree Prof. Samir Srivastava Associate Professor, IIM-Lucknow Prof. Akhil Chandra Institute of Logistics & Aviation Management Ramesh Kumar Member, National Committee on Supply Chain & Logistics, Govt. of India
Marketing & Sales Kalika Singh Ph: 011-22478538-39, 9891007542 Email: email@example.com Printer & Publisher Deepa Misra for
E-77, West Vinod Nagar, Delhi -110092 Tel: +91 11 22478538-39, Fax: +91 11 22471764, Mumbai: +91 9322811550 Printed at Personal Graphics & Advertiser Pvt. Ltd. Y -22, Okhla Industrial Area-II, New Delhi-110020
Supply Chain Challenges in Emerging Markets Edit Note
28 PERSPECTIVE The New Normal
STUDY PAPER The Growth Catalyst in Emerging Markets
EVENT Cold Chain Financing
Same size does not fit all We are probably in the midst of a very interesting and defining global economic churning. Something which, in a macro-sense, is aligned with Alvin Toffler’s theory of ‘future waves’ and had started off decisively when Goldman Sachs had floated the idea of BRIC countries (comprising Brazil, Russia, India and China) in the early part of the millennia. The assumption that in the present century new magnets would emerge on global economic map has only consolidated in the last one decade with more additions to the list of prospective countries who will be lead players to this possible monumental change. The downswing in the growth pattern of the developed markets in the recent years has further made it clear to all and sundry that conventional balance of business power of the world, as was recognized in the previous century, will lose its validity fast. Probably sooner than expected as after Asia, its Africa which is now knocking at the doors of reckoning. What does the changing scenario mean for supply chain and how will it play out in the emerging markets which suffer from myriads of constraints? Nonetheless, the scales of production and distribution are growing and so time is in short supply to surmount those challenges. Our cover feature in this edition tends to look at this critical issue. At a recently organized ‘International Conference on Supply Chain and Logistics Management’ in Delhi, thought leaders from the industry as well as global academia presented very interesting perspectives on the criticality of supply chains in the emerging markets. The key assumption underlined was: the supply chain modules which have worked in the developed markets in the past are not meant to meet with the same degree of success in the emerging markets given the local factors. What would work is a serious tweak to the existing models with local strengths being put in as defining constituents. There are already umpteen examples of how major MNCs have failed in certain emerging markets because they relied on copy, pasting model. In a more micro-sense, there are also issues like infrastructural bottlenecks, policy and procedural shortcomings, etc. where governments of these respective markets need to act fast. While dealing efficiently with uncertain external factors would be a key challenge for supply chain professionals especially in the emerging markets, what is certain is that the horizon of next one decade looks too much action filled. “ Supply Chain professionals have to be ready to deal with the good, bad and the ugly in the future at a more frequent pace,” opined the logistics head of a leading auto MNC. And this can’t be any different given the fact that supply chain ultimately seems to heading to assume that coveted ‘make or mar’ positioning for the companies and businesses, something which several international agencies are pointing out today. Waiting for your response Ritwik Sinha firstname.lastname@example.org
LOGISTICS TIMES August 2011
Inland Waterways Project at Kolkatta The Minister of Shipping G.K. Vasan has said that it is the government’s endeavour to make all the ports of the country profitable. He was speaking after flagging off coal barges of 2100 DWT (Deadweight tonnage) of Jindal ITF to formally launch the recently started movement of imported coal on National Waterway-1 (the Ganga-Bhagirathi-Hooghly River System) by inland vessels from Sandheads in Bay of Bengal to Farakka Thermal Power Plant of NTPC in District Murshidabad, West Bengal. The minister said that this is a unique project where government, public and private sectors joined hands to provide a good alternative mode of transport. Vasan pointed out that the Kolkatta Port Trust would also get revenue out of this project. The minister also inaugurated a Transport terminal of the Inland Waterways Authority of India (IWAI) at the function at Garden Reach Jetty-2 in Kolkatta Port Trust area. Vasan further said that in due course of time IWAI would develop more such inter-modal transportation hubs with rail and road connectivity for movement of not only the coal but also other bulk cargo like fertilizers, foodgrains, etc. This additional supply of coal through inland waterways, an eco-friendly, economical and fuel efficient mode of transport, will augment coal supply
to NTPC power plant at Farakka enabling increased power generation and employment opportunities. The minister expressed happiness that for the first time in the country a private entrepreneur has made a substantiate investment in the IWT development. Jindal ITF has invested about Rs. 500 crore for transshipper at Sandheads, 23 coal carrying barges, inland water terminal at Farakka with state-of-art coal unloading cranes and a conveyor belt system. The operator, Jindal ITF will transport minimum three (3) million tonnes of coal per annum for seven years. Speaking on the occasion the Secretary, Ministry of Shipping, Vishwapati Trivedi said that this project has been set up offer overcoming great difficulties. He emphasized on the importance of further developing the riverain ports of the region. Amitabh Verma, Chairman, IWAI, R.P.S. Kahlon, Chairman, KoPT and other senior officials also participated in the function. Kolkata being a transportation hub on the Ganga, the new terminal would serve states of Uttar Pradesh, Bihar, West Bengal and the North-Eastern Region. The construction of this RCC Inland Waterways Terminal (IWT) terminal was taken up in Kolkatta Port Trust area at a cost of about Rs. 38 crore and it will give a fillip to inland navigation in the region.
Robust growth in apparel exports The growth in apparel exports in the first half of the current fiscal has been in a high double-digit trajectory. Speaking at the AEPC annual export award function 2013 organised recently in Gurgaon, Dr. K S Rao, Union Textiles Minister informed the gathering that apparel exports has once again picked up the momentum. “The apparel sector has earned Rs. 49,200 crores forex in April-October, 2013, showing a growth of 26% over the same period during year 2012. Income in both the currencies i.e. INR and US$ are buoyant. In dollar terms, the growth is 15.5% (US$ 8.2 billion) during the same period. I am confident that we are on the road to recovery. Signs of its revival are visible in USA & EU, which guided my instinct to revise the apparel export target to USD 17 Billion during the current Financial Year. I am sure the industry will compensate its deficit and shall try to reach US $ 60 billion in the next three years,” Dr. Rao said. Underlining the key objectives of 12th five Year Plan, Dr. Rao said, achieving annual average growth rate of 11.5% in volume terms in cloth production, increase LOGISTICS TIMES December 2013
domestic value addition and technological depth, training of 35 lakh persons, additional employment to 15.81 million workers by 2016-17, etc are the key priorities. The minister also underlined need to innovate and explore new non-traditional markets like Israel, Russia, Brazil and Japan etc. The new markets should be perceived actually as a new growth opportunity.
Glass Industry to touch Rs. 340 billion
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected the market size of Indian glass industry worth Rs.340 billion by 2015 as against the current estimate at Rs.225 billion primarily fuelled by growth within the real estate sector, infrastructural development, retail sector, automotives sales and food and beverages industry. Releasing the findings of a recent study, ASSOCHAM secretary general, D S Rawat said, Indian glass market has been predicted to increase at a compound annual growth rate (CAGR) of 15% over the next three years. The glass consumption growth is expected in construction (10-12 per cent), automotive (20 per cent), consumer goods (15-20 per cent) and pharmaceuticals (1518 per cent) sectors.
The organized sector is dominated by large players like ASAHI Glass India, Hindustan National Glass & Industries, Piramal Glass, Saint-Gobain India, HSIL, Owen Corning, Triveni Glass, Borosil, Nippon Electric glass, Gujarat Borosil, and Sezal Glass, adds the paper. About 70% of the total glass production in the unorganized sector in India is contributed by Firozabad glass industry, which is Indiaâ€™s biggest glass industry cluster with nearly 5-6 lakh people employed directly and plenty more employed indirectly with this sector. The cluster holds a unique position of consisting of micro, small and medium units located at one place and being capable of producing a variety of glass products ranging from art ware, chandeliers to multicolored bangles. The paper further mentioned that, about 75% of the total glass industries are concentrated in U.P, Maharashtra, Gujarat, Karnataka and Andhra Pradesh. The highest share in the number of factories of the glass industry is Uttar Pradesh with a share of 36.9% followed by Gujarat at 15%, Andhra Pradesh and Tamil Nadu at 5.6% and Karnataka with 4.0%. The highest employment in the glass industry is in Gujarat followed by Uttar Pradesh, Maharashtra and Andhra Pradesh. The per capita glass consumption in India is 1.2 kg, compared with 8-9 kg in developed countries and 30-35 kg in the US, adds the ASSOCHAM paper.
Over 6 MT cold storage capacity addition In a written reply to the Lok Sabha, Tariq Anwar, Minister of State for Agriculture and Food Processing Industries has said that the cold storage sector has witnessed significant capacity addition since 2010. The cold storage capacity in 2009 stood at 24.45 million MT and an additional capacity of 6.42 million MT has been created since January 2010 till March 2013 under various schemes of the government. All India Coordinated Research Project on Post-harvest Technology, Indian Council of Agricultural Research (ICAR) conducted a study at National level and made public its report in September, 2012. As per this report estimated economic value of harvest and post-harvest losses of crops and livestock produce was Rs.44,143 crore at 2007-08 prices which includes losses due to shortage of storage. According to a PIB release, the government is continuing implementation of various schemes during XIIth plan period under which grant-in-aid is provided to entrepreneurs for setting up of cold storages in the
country. These include: National Horticulture Mission (NHM); Horticulture Mission for North East and Himalayan States (HMNEH); National Horticulture Board (NHB); Scheme for Development and strengthening of Agricultural Marketing Infrastructure, Grading and Standardization; Scheme of Ministry of Food Processing Industries (MoFPI); Scheme of Agricultural Processed Food Products Export Development Authority (APEDA) and Scheme of National Cooperative Development Corporation (NCDC). The cold storage component of these schemes are project based. LOGISTICS TIMES December 2013
Two-wheelers drive auto growth
According to the latest sales estimate of Society of Indian Automobile Manufacturers Association, barring the two-wheelers segment, a noticeable uptick in other segments is still missing. The industry produced a total 1,773,678 vehicles including passenger vehicles, commercial vehicles, three wheelers and two wheelers in November 2013 as against 1,644,723 in November 2012, registering a growth of 7.84 percent over the same month last year. The growth continues to be on account of surge in two wheelers production.
The overall domestic sales during April-November 2013 grew marginally by 2.73 percent over the same period last year. Again this is because of growth in two wheelers sales. The sales of Passenger Vehicles declined by (-) 5.34 percent during April-November 2013 over the same period last year. Within the Passenger Vehicles, Passenger Cars, Utility Vehicles and Vans dropped by (-) 4.97 percent, (-) 3.62 percent and (-) 12.23 percent respectively during April-November 2013 compared to the same period last year. The overall Commercial Vehicles segment registered a de-growth of (-) 17.51 percent in April-November 2013 as compared to the same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) registered negative growth at (-) 26.81 percent and Light Commercial Vehicles also dropped by (-) 12.52 percent. Three Wheelers sales declined by (-) 7.83 percent in April-November 2013 over the same period last year. Passenger Carriers and Goods Carriers declined by (-) 8.29 percent and (-) 5.70 percent respectively in AprilNovember 2013 over April-November 2012. Two Wheelers registered growth of 5.78 percent during April-November 2013 over April-November 2012. Within the Two Wheelers segment, Scooters and Motorcycles grew at 18.70 percent and 3.32 percent respectively, while Mopeds declined by (-) 10.49 percent in April-November 2013 over April-November 2012.
Safeducate launches its Learning Forum Safeducate, a specialist in supply chain and logistics training, recently launched the Safeducate–CILT Learning Forum at their corporate office in New Delhi in the presence of more than 25 eminent representatives from the industry. On this occasion, Divya Jain, CEO, Safeducate said, “The idea behind this initiative is to encourage meaningful dialogue between senior professionals from supply chain and logistics industry about the various issues prevailing in the industry. This forum helps in creating a platform for these industry professionals, where they could share their expertise in tackling various challenges associated with the industry.” She further added, “Going forward, this initiative will provide a strong base to the industry people to voice their concerns, and come up with feasible and long-term solutions to address the technological, administrative and infrastructural challenges within the supply chain.” The participants in the event included senior representatives from CILT India (The Chartered Institute of Logistics & Transport), Bird Group, LOGISTICS TIMES December 2013
Freight Forwarders Association of India, Inter India Group, TCI Supply Chain Solutions, Agarwal Packer & Movers, SKF India, among others. Divya Jain concluded by announcing that, “This forum will now be a monthly affair, wherein the turnout from the industry is expected to grow significantly and Safeducate will extend its support for more of such forums which would serve the industry cause.”
LOGISTICS TIMES December 2013
Adani signs MOU with Belgian Port Adani Ports & SEZ has signed a Memorandum of Understanding (MoU) with the Belgian Port of Zeebrugge, to act as a strategic entry port for the lucrative European market. It will now collaborate with the Belgian port to explore joint business opportunities between the two ports along with other forms of trade, shipping, railway infrastructure across India and Europe. The MoU over a period of time will help in an enhanced movement of traffic to and from APSEZ into Europe and beyond. It will also enable sharing of global best practices including technical know-how between two of the leading port developers globally. During the visit of an important Belgian business delegation led by HRH Princess Astrid of Belgium, Representative of His Majesty the King to India, the deal was signed between the two companies in Mumbai last month. Speaking on the development Karan Adani, Executive Director, APSEZ said. This MoU with the port Zeebruggeis is an important milestone and we are keen to jointly explore marketing endeavours and strat-
egies to promote Indo-European trade relations across both the ports via leading shipping lines.” The partners will support mutual development in the sectors of ports and shipping and expand their presence internationally through commercial contacts, exchanging port experts and exploring possibilities of mutual exchange of information in the fields of economy, trading, shipping, environment, transhipment, RoRo, railway and other possible industry linked fields.
APM introduces Token Management System APM Terminals Inland Services South Asia (APMT IS SA) recently introduced a touch screen customer service kiosk, similar to the kiosk in the retail banking industry. RFID mapped to the container freight station (CFS) management system (CONTRACK) is linked to this customer service kiosk. The kiosk located in the custom’s area enable the custom house agent (CHA) to check the arrival status of the container at the CFS and the exact location of the container within the CFS. On entering container details the kiosk prints a receiving note to the CHA on the arrival status which is then presented as part of the documentation process for clearance of container. “These cost effective innovations provide real time visibility of each container location in the CFS. LOGISTICS TIMES December 2013
The visibility is available to customers and their representatives at strategically placed kiosks inside the CFS and also results in better queue management, a pedestrian free yard and drives in customer satisfaction” said Subhasis Ghosh, Managing Director, APM Terminals India & Director, APM Terminals Inland Services, South Asia CONTRACK launched in 2012 was integrated with RFID technology to enable container tracking and improve customer service, operations planning and safety standards. In the RFID enabled container tracking solution, all incoming containers get tagged at the time of ‘Gate in’ with RFID tags. Zone wise yard mapping is done with global positioning system (GPS) to replicate the location in the system.
Knorr-Bremse opens a new plant Knorr-Bremse is expanding its production capacity in India for the rail vehicle sectors. Recently, it opened a new production facility in Palwal, as well as a Development Center to be shared by its division. In the presence of numerous customers and business partners as well as prominent representatives of Knorr-Bremse, the Rail Vehicle Systems was officially opened on November 15th in Palwal. In line with Knorr-Bremse’s corporate philosophy, the architecture and layout of the new production plants are founded on transparent structures and designed to promote open communications between production and support departments and ensure efficient dialogue between development and production. At the same time the new buildings meet the highest requirements in terms of ecological standards in order to reduce energy consumption and operating costs as well as conserving natural resources. To reinforce the Group’s research and development activities, a state-of-the-art Development Center has been appended to the new production plant in Palwal. By stepping up its production capacity through construction
of a new plant, Knorr Bremse in India is preparing to meet rising demand in the coming years. One underlying factor here is the modernized railway network forming. Within this expansion, existing rail vehicles are being upgraded and orders placed for new ones – important area in which Knorr-Bremse has successfully played an active role in India for many years. The new plant is located in Palwal, 30 kilometers south of the former site in Faridabad, and offers around 74,000 m² of production and office space.
Basem Internationala goes live with Kale solution Basem International has gone live with Kale’s warehousing, distribution and container management solution for its new terminals and warehouses in Dammam & Jubail. The implementation of the solutions was done in a record time of less than 6 weeks. Basem International, one of the largest integrated logistics service providers in the Kingdom of Saudi Arabia, needed to automate its processes in order to provide end-to-end service to its customers. It required a new generation web based package which automated the inbound, outbound, billing and exceptions processing as well as providing giving real time visibility of business to its management. With this implementation, Basem now has a single window system to manage its warehouse, container and transportation operations along with a financial module. Commenting on the development Mohammed Aslam
Kazi, Chairman- Basem International Shipping & Logistics said, “Kale’s in-depth domain knowledge and understanding of our requirements has helped ensure a smooth implementation of this system and we believe that this new generation solution will give Basem the capability to align its operations with the organization’s strategic goals to attain cost savings, agility and enhanced customer satisfaction.” “We are very pleased to welcome Basem International to our growing family of clients in the Middle East region. Our proven off-the-shelf solutions have been implemented and used by several global businesses, and we are confident that it will deliver tangible business benefits to Basem in terms of productivity, lowering transactional costs and providing end to end visibility to all stakeholders.” said Vineet Malhotra, SVP- Kale Logistics Solutions LOGISTICS TIMES December 2013
Schenker India Eyes revenue growth rate of 20 per cent S c h e n k e r India, part of DB Schenker transport and logistics division of 39 bn euro D e u t s c h e Bahn Group, has identified India as a key growth market. As part of the growth strategy to increase its share of the $225 bn logistics market, the company has announced its expansion plans, which envisages enhancing the warehousing footprint of the company by 50 per cent to 3 million sq ft from an existing 1.8 million sq ft and growing revenues by 20 per cent annually. The company has also doubled its Schenker Logistics Centres (large sized, Multi Client facilities) to 11 this year as part of the expansion plan. Schenker India, which clocked revenues of Rs 1500 crores last year( FY 2012-13), operates in the export-
import segment through – ocean freight and air cargo and within the country it functions primarily in the contract logistics area, which includes road transportation and managing warehousing facilities. In total, it operates warehouses in 53 locations, 50 dedicated trucks (branded as DB Schenker) and additionally operates 200-300 trucks on a daily basis. In the exportimport segment, DB Schenker handles about 80,000 tonnes of air cargo and 80,000 twenty foot equivalent units (TEU) of ocean containers a year. In the contract logistics footprint, the company has registered a growth of 40 percent this year, with robust demand from retail, industrial, electronics and manufacturing sectors. Identifying contract logistics as a key growth driver for the company in future, Reiner Allgeier, MD, Schenker India said, ‘The contract logistics market in India is growing at 10-15 per cent, as companies are increasingly outsourcing their logistics and warehousing functions. As specialists with expertise to manage complex logistics requirement, we are well positioned to leverage the market potential. We expect to grow overall by 20 percent next year, as demand remains strong from retail, electronics and manufacturing sectors. We are also exploring inorganic routes through acquisitions in the domestic distribution business to augment growth”
Egis announces major growth plans EGIS India, a subsidiary of the EGIS Group, the French infrastructure and engineering consultancy major has announced major growth and investment plans for India. Addressing the media in New Delhi last month, the Group Chairman, Nicolas Jachiet said, “India has emerged as one of the key markets for the EGIS group and we plan to make significant investments to drive growth in India. We are looking at growing both organically and inorganically in the Indian market.” The Egis Group reported a global turnover of US$ 1.2 billion (approx. INR 7,474 crore) in 2012, has a presence in over 100 countries where it employs 12000 people, and is registering more than 50% of its turnover outside its home market. The group entered India in 1996 and has been involved in many prestigious projects in the country since then. The company is currently executing 108 projects in India with an estimated total value of INR 878 crore. Some of the major projects are - Metro Rail projects in Chennai, Kochi & Kolkata; Hyderabad Outer Ring Road; projects under NVDA; 1048 km long Ganga Expressway; Mumbai Master Plan LOGISTICS TIMES December 2013
VISION 2034 and Ports in Daman & Diu. In FY 2012-13, Egis India clocked a turnover of INR 166 crore and with more than 1100 employees is the largest Egis group subsidiary. The group plans to increase its turnover in India to INR 400 crore over the next five years, and the 2013 calendar year order intake of INR 380 crore is in line with this objective. Jachiet added, “The Indian market is poised for rapid growth and massive investments are being made in the infrastructure sector. This augurs well for Egis India and we are confident of achieving exponential growth in this market given our deep domain knowledge, globally acknowledged consulting expertise and customercentric culture.”
Lost Forever 'La, la, la'. Why Joval is singing? Jaiveer Joval was in seventh heaven. His cup of joy was overflowing. The excitement in his voice was unmeasurable. When he could not reach me over phone due to busy tone at my end, he texted me on a mid-Novermber night: Ramesh Kumar
'MY STOLEN BHARAT BENZ VEHICLE HAS BEEN RECOVERED. WAS BEING USED BY SANDALWOOD SMUGGLERS IN ANDHRA. GANG USING PURELY STOLEN VEHICLES FOR SMUGGLING. STORY BECOME MORE AND MORE INTERESTING. WILL YOU KEEP BRIEFED'
I can understand the mood of this London School of Economicseducated jockey service provider (JSP). What's that? Well, Under Joval Logistics banner, Joval provides drivers to heavy commercial vehicle OEMs such as Ashok Leyland and Daimler Benz to push their chasses/FBUs to their respective regional stock yards/regional sales offices or dealers who coughed up money on behalf of ultimate end-users viz., motor maliks. Not one or two. But in hundreds. At any point of time, Joval has nothing less than a thousand truck drivers at his beck and call. This is the age of outsourcing. I put it as 'transferring headache to third parties for a fee'! Joval's experience was interesting. A Bharat Benz delivery to the neighbouring Andhra Pradesh suddenly vamoosed - just outside the RTO checkpost on the Tamilnadu-AP border. His driver was shocked to find his vehicle
missing when he emerged out of RTO booth on an October night. When he rushed back inside to complain about the missing vehicle, the RTO officials thankfully rushed out to help him. Alas, their empty fuel tank deprived such a 'noble gesture'. Then began the chasing game. Filing a First Information Report or FIR is no child's play in India. I got the first hand taste of it on Diwali eve when a Siddhi Vinayak Logistics vehicle from Silvassa to Faridabad carrying Rs.1.35 crore copper wire rods went out of GPS radar. Under the KRK Foundation banner, I stepped in to assist the logistics company in getting the FIR done in Delhi where the vehicle was last tracked - just outside Taj Palace, Delhi. Believe me, the FIR got registered a week later in Agra where the empty vehicle was found parked in a petrol outlet. Till this day (early December), neither the material nor the driver were found. Coming back to Joval episode, smugglers have hijacked his vehicle to transport sandalwood. By chance, the driver jumped a red signal and the traffic cop whistled to stop. That's when the drama happened. Driver jumped along with several others in the brand new Bharat Benz and ran away leaving the vehicle as it is. The number plate proved that it was fake. Local Bharat Benz dealer's service was requisitioned to check the chassis and engine number and that's how, Joval got a telephone call from the police that his vehicle was traced. But for the 'signal jump' and getting caught by traffic police, that vehicle would LOGISTICS TIMES December 2013
have been forgotten. Most of the stolen vehicles do not remain as one single unit. They are dis-assembled and sold part by part in various states thus making traceability next to impossible. Lucky Joval, his vehicle did not meet with this fate. Shyam Sunder Agarwal, Director of Beralia Roadlines, sitting in his posh office in Nagpur categorically tells me that he 'makes' provision for a loss of vehicle or two every year. "It is inevitable," says the scion belonging to the TCI parivar. 'Try lodging a FIR with the police after the vehicle is stolen. It is next to impossible," he emphasises. I need no second experience. I know the intricacies. Indian highways are like jungle. No highways security force that patrols. Billions rupees worth of goods ply on commercial vehicles, manned by uneducated and less safety conscious drivers. There is a lot of talk about creating hubs every 300 km on the highways where vehicles can remain secured for overnight stay and also enable proper rest room facilities for the hapless drivers. Nothing seems to LOGISTICS TIMES December 2013
Indian highways are like jungle. No highways security force that patrols. Billions rupees worth of goods ply on commercial vehicles, manned by uneducated and less safety conscious drivers. have materialised, honestly. In my experience of travelling on Indian highways for 22,000 km in trucks over the past four years, vehicles are halted anywhere on the highways in godforsaken places. Some manage to get parking space inside big oil outlets. No wonder, highways dacoity, murder of drivers and assistants are a daily occurrence. Consignors/ consignees get their insurance claim. Fleet owners get theirs after a long wait because until police submits 'non-traceability report' after a gap of at least 180 days, no insurance company will entertain insurance claims. What about the
murdered driver or his assistants? Who cares? The transport industry, the most vital link, does not get the requisite support from governments at the cetnre and state levels. Why? Because their lobbying power is nothing to write home about. The writer is the author of 10,000 KM on Indian Highways, Naked Banana! and An Affair With Indian Highways. He also runs KRK Foundation, a registered Trust, focused on improving the working and living conditions of truck drivers and their families living in remote villages of India. He is reachable at email@example.com
INDIA CHINA SOUTH AFRICA TURKEY POLAND ROMANIA VENEZUELA PHILIPPINES
Supply Chain Challenges in Emerging Markets LOGISTICS TIMES December 2013
Global economy is probably in the midst of its most defining churning with the arrival of new economic magnets referred as emerging markets. But what does it mean for the supply chain domain and how will it play out in the new economic hotspots which have common problems as well as peculiar problems of their own? Thought leaders from the industry and global academia underline some of the key supply chain challenges for the next one decade which companies and businesses will have to surmount. A reportâ€Ś LOGISTICS TIMES December 2013
is no secret to anybody. In the new millennia, the balance of economic might is shifting dramatically with some old citadels losing their significance to the new magnets. In the popular parlance, these magnets are referred as emerging economies or markets. But here too the pace of change has been quite rapid especially in terms of addition of new prospective power houses. The BRIC theory ( comprising Brazil, Russia, India and China) propounded by Goldman Sachs in the early part of the last decade signaling the new growth drivers of the global economy in 21st century had to undergo a quick modification in 2010 when the acronym was changed to BRICS including South Africa as well. But the churnings of last few years have clearly indicated that the canvas of emerging markets is not just about BRICS nations. There are a host of other countries which have begun to constantly knock at the doors of the prominence. In a report released in 2012, International Monetary Fund (IMF) had presented a long list of countries which can be dubbed as emerging economies. These included: Bulgaria, Chile, Hungary, Indonesia, Malaysia, Mexico, Peru, Philippines, Poland, Romania, Thailand, Ukraine, Turkey, Venezuela, etc. The writing is on the wall. These countries are increasingly becoming the favorite operational turfs of global conglomerates and at the same time, companies rooted in some of these countries too are eyeing for a global footprint apart from consolidating their position
LOGISTICS TIMES December 2013
in their own backyard where intense competition has become the rule of the game. So the moot question here is: how does the new equation impact the supply chain scenario in these countries? Something that lies at the core of that fundamental issue of the structured growth of the promising economies. A two day conference (International Conference on Supply Chain and Logistics Management) organized by Birla Institute of Management Technology and University of Hull, UK early this month in Delhi which saw the congregation of leading thought leaders from the industry as well as global academia attempted to search for solutions pertaining to the basic supply chain issues in the emerging markets. While there appeared out to be an unanimity on the standpoint that ‘same size does not fit all’ (that is the tested supply chain formula in developed countries may not necessarily prove their efficacy in the emerging markets with the same degree of success), a strong advocation which did emerge out was to opt for dynamic supply chains in a market place where coping with uncertain factors every now and then is certain. “ Supply chains have become very important in the last two decades. They are intrinsically linked to the twin goals of cost reduction and better services and their importance is paramount in emerging economies where scales are growing,” Dr. H Chaturvedi, Director, BIMTECH set the tone of the deliberations in these words. And then the lead speakers concentrated on
Supply chains have become very important in the last two decades. They are intrinsically linked to the twin goals of cost reduction and better services and their importance is paramount in emerging economies where scales are growing. Dr. H Chaturvedi Director, BIMTECH
Certainty is a luxury we can never have. You have the rise and fall of the dollar, fluctuations in the oil markets, etc. A supply chain company will find it difficult to factor in these changes at the required pace.
Emerging markets are ready markets. Products and technology are the same everywhere. The critical factor, therefore, is the supply chain. And here a dynamic approach would be needed.
Harry Lagad VP, Toll Global Logistics
Pawanexh Kohli Chief Advisor, (NCCD)
micro issues which are evident in emerging markets in the form of challenges which need to be surmounted expeditiously. “Transport raises a number of issues in emerging economies. Infrastructure, synchronization of different resources, environment, skill sets, etc. are the critical challenges when we consider the prevailing supply chain regime in the emerging markets,” Dr. C S Lalwani, Emeritus Professor, Hull University underlined. Harry Lagad, VP, Corporate Projects (South & South East Asia), Toll Global Logistics in his extensive presentation primarily focused on two points – the high degree of uncertainty in the global market place and the rapid pace of change which is pushing emerging economies closer to the center stage. “Certainty is a luxury we can never have. You have the rise and fall of the dollar, fluctuations in the oil markets, etc. A supply chain company will find it difficult to factor in these changes at the required pace,” he commented. He further drew the next ten years scenario which would encompass some interesting churnings including the GDP of developing nations outpacing the developed countries; urban population
By 2025, we target to touch 300 million tonnes. That would in turn mean a staggering 1500 million tonnes of mineral resources cargo transport. It would be a huge opportunity for logistics and supply chain companies. V R Sharma Dy MD, Jindal Steel
mounting by leaps and bounds; a significant increase of the middle class group and also emergence of less poor class; arrival of new global brands like Tata, Infosys, Haier,etc. “ If we look at the evolving equations, then industry has to come back strongly and for that sound supply chains would be required. E-commerce has come up in a big way but we have not reached to the end-users in a comprehensive manner. For supply chain companies, the mantra would be: think globally, act locally and panic internally,” Lagad advocated in his concluding statement. LOGISTICS TIMES December 2013
Logistics and supply chain management of core sector is essential for emerging economies to sustain economic growth. This point should not be lost on anybody. Vinod Asthana MD, CRWC
Infrastructure, synchronization of different resources, environment, skill sets, etc. are the critical challenges when we consider the prevailing supply chain regime in the emerging markets.
We might be having a big industry in terms of size and revenue, but the top ten 3PL firms have a meager share of just 2 percent of the pie. It would be a long journey.
Agile supply chain is meant for less predictable environment and this approach would be more in demand. Supply chain professionals will have to face the good, the bad and the ugly in the future.
Dr. C S Lalwani Emeritus Professor, Hull University
Sajal Mitra Blupith Consultancy
Achal Paliwal Head, Logistics and Exports, Honda Cars
Kimble Winter, CEO, Logistics Executive Group emphasized on the changing tides in the global economy and how it makes it compelling for the businesses in general to look for sound supply chain mechanisms. “ There is no gainsaying that the power is shifting from advanced markets to emerging markets. Just to cite an example, G-20 is increasingly becoming more prominent. Africa is emerging as the fastest growing continent in the world (4.9%).” V R Sharma, Deputy MD, Jindal Steel spoke in the similar vein pointing out how the sudden proliferation in operational scale would make it imperative to bring in more efficient supply chain systems in the emerging markets. “India is LOGISTICS TIMES December 2013
currently producing 80 million tonnes of steel. But by 2025, we target to touch 300 million tonnes. That would in turn mean a staggering 1500 million tonnes of mineral resources cargo transport. It would be a huge opportunity for logistics and supply chain companies.” Pawanexh Kohli, Chief Advisor, National Center for Cold Chain Development (NCCD), firmly underlined the point that the criticality of supply chain would only enhance in the coming years. Probably, the make or mar prospect of any business would largely hinge on it. “Emerging markets are often misunderstood for developing markets. Emerging markets are ready markets. Products and technology are the same everywhere. The critical factor, therefore, is the supply chain. And here a dynamic approach would be needed. A simple free trade agreement may force to change the supply chain models.” Sajal Mittra, Director, Blupith Consultancy strongly opined that it would take quite a lot to pave the way for the implementation of progressive supply chain systems in a market like India. “ In a country like ours, the main supply chain systems are largely handled by the unorganized sector. We might be having a big industry in terms of size and revenue, but the top ten 3PL firms
G-20 is increasingly becoming more prominent. Africa is emerging as the fastest growing continent in the world (4.9%). Kimble Winter CEO, Logistics Executive Group
India is ahead of China in wasting food. For past so many years, we are hearing that our food wastage is 40 percent and this figure never changes. Howard James Scott Director, Big Bear
have a meager share of just 2 percent of the pie. It would be a long journey.” Shammi Dua, Head Logistics, AkzoNobel India raised a pertinent issue which is believed to have become a common thread among all emerging economies – the quest to go beyond metro markets. “ A lot of our supply chains have been designed to cater to the metro markets. But this has to change. Metro will provide you the base but the markets down below will have to be penetrated,” he said while adding that reverse logistics could be the next big thing in the emerging markets. Howard James Scott, Director, Big Bear Enterprises touched upon the supply chain inadequacies in agri-commodities in the emerging markets. He made no bones in expressing his disappointment. “ India is ahead of China in wasting food. For past so many years, we are hearing that our food wastage is 40 percent and this figure never changes. Its very disappointing… we are not concentrating enough on food supply chains,” he pointed out. Achal Paliwal, Head, Logistics and Exports, Honda Cars in his presentation also strongly emphasized that the effective supply chains of the future in a fast growing emerging market would be ones which respond to unpredictable factors. “ A lot of people believe that
In the changing warehousing landscape, the focus is on getting more. This demands for greater emphasis on product value addition to make warehouses value enablers.
A lot of our supply chains have been designed to cater to the metro markets. But this has to change. Metro will provide you the base but the markets down below will have to be penetrated.
Sunnil Dabral Country Head SSI Schaefer India
Shammi Dua Head Logistics, AkzoNobel India
lean would mean agile. Its actually the other way round. Lean is doing more with less and is good for standardized products. Agile, on the other hand, is meant for less predictable environment and this approach would be more in demand. Supply chain professionals will have to face the good, the bad and the ugly in the future.” Vinod Asthana, MD, Central Railside Warehousing Company (CRWC) focused on the criticality of giving the essential commodities supply chain issues its due. “Logistics and supply chain management of core sector is essential for emerging economies to sustain economic growth. This point should not be lost on anybody.” - Ritwik Sinha LOGISTICS TIMES December 2013
The new normal 2013 will b e the first time since reliable records began when emerging and developing economies will be bigger than the advanced economies on Purchase Power Parity terms. Going by the current trend, this gap will steadily
Abhijit Chaudhuri MD, Milestone Consultancy
The new normal supply chain map of the world has the emergence of a large number of low cost sourcing country in Africa in the field of solid waste management with its' associated environmental concern. grow and over the next five years the emerging economies would emphatically define the world trade and development agenda. Such a dominant structural shift will be accompanied by new normal in the supply chains, the prima donna, as it were, of the world. Paradigm shift in the logistics maps of the world - post 2008 economic crisis empty return routes of both bulk and container vessels are all too familiar. The resultant economy of wastage made products uncompetitive and
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the emerging economies chose to adopt responsible innovation to sustain their growth momentum. China chose to invest in the trans-continental railway to carry durable prodcuts from the Chinese heartland to Germany as a gateway to the European mainland. India, on the other hand, responded by having its extensive outreach of
India Post to augment the supply side management by ferrying products to the remote areas of the country where e-commerce has made significant inroads. The new normal logistics challenge for the emerging economies is that of frugal, sustainable innovation. Technology - If the logistics innovation has been aimed at low cost distribution ability, often by retrofitting existing local infrastructure, the new normal for adoption of technology platform by the emerging economies has
progressively relied on the developed countries for new technology and applications. Bosch in Germany along with McKinsey is experimenting on Manufacturing 3.0 that would entail embedded intelligence in components that will cocreate an optimum logistics route in its journey from the highest upstream (raw stock) to the destination downstream (at the final assembly stage). This will undoubtedly improve throughput, and, when adopted to 3D printing, speed of delivery. Human Face of Supply Chain - The growth of global trade brought in its wake rampant violation of human dignity. Apple resorted to body shopping of workmen from poor countries like Nepal to i-phone component part assembly locations like Phillipines (itself a developing nation), leaving in its trail shattered homes, penury and life threatening indebtedness. There have also been reports of engagement of child labour in China by the same company. Amidst this corporate greed, industry leaders in the emerging economies are charting a new course of humanizing the supply chain. In India while ITCs Triple E Balance Sheet serves the society at large through its clear focus of economy, ecology and environment, all the top pharma majors of the country collaborated to create a group to keep track and control ethical behaviour of their suppliers. The new normal supply chain map of the world will see the emergence of a large number of low cost sourcing countries in Africa in the field of solid
waste management with its associated environmental concern. The emergence of MENASA countries with a fledgling middle
class, the harbinger of the global growth story, will be served well by such 'be local, buy local' mandate.
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The Catalyst for Growth in Emerging Market Introduction
Research house Gartner Inc. forecasts the emerging 2013 is the year when the developing and emerging markets opportunity as $30 trillion and have identified economies will be taking over the advanced economies the emerging markets as the primary business growth and will account for more than half of world GDP area in this century. Gartner also makes a note that on the basis of purchasing power, according to it will be the Supply Chain Leaders who will be held the International Monetary Fund (IMF). Emerging responsible for the success or failure of business economies like India, China and Brazil continue see a growth in these markets based on the capabilities they faster growth with lower per capita income compared put in place. to Developed regions as in Europe and North America Executives from large multinational firms also do believe where a slower growth and high per capita income is that the key to long-term business is now available with seen. These emerging economies might have seen a investing and making presence felt in emerging markets. recent deceleration in their growth but this could be But at the same time executives are also pinched by the just a cyclical stumbling amongst many reasons cited complexity for seizing the opportunity while holding by economists. According to PricewaterhouseCoopers, against local upstarts. According to Accenture Research the world economy is to expand in line with its long-term trend rate of Research house Gartner Inc. forecasts the 3.3% in PPP terms with emerging economies emerging markets opportunity as $30 trillion taking the front seat in and have identified the emerging markets driving this growth. For the organizations with as the primary business growth area in this global operations in century. Gartner also makes a note that it markets differentiated by the growth rate, the will be the Supply Chain Leaders who will be impact has already started held responsible for the success or failure of to be felt. Emerging economies, business growth in these markets based on with growth fuelled by the capabilities they put in place. increasing affluence and domestic demand, offers tremendous business opportunities for companies. According to ‘Agility’s survey involving more than 600 senior executives across Emerging Markets Logistics Index 2013’ during 2012, multinational companies around the world, 40 precent emerging markets categorized by 45 nations grew at an of the executives said that “they lack a strategy or the average of 4.4%. During the same period economic operational capabilities to grasp opportunities in these growth in United States is seen at roughly 2% and markets. More than half said they need to fundamentally European Union contracting to 0.2%. No wonder as rethink their strategies to compete in them.” the wells in the developed economies continue to dry or It may be a bit surprising that in spite of the fact that levels remain stagnated, the emerging economies seek multinationals are now realizing the importance of interests of the global companies. Global Companies emerging markets in their organization growth strategy; are now not only looking at emerging economies to executives claim to point that their organization is compensate growth in home market, but also to boost lacking strategy to capitalize on the opportunity. But then operating in emerging economies comes with a and make their presence felt. LOGISTICS TIMES December 2013
different set of its own challenges and hence the belief amongst the executives. Confident local players with established relationships, government supports etc. in these markets continue to pose some threat to the global players. The increase in business activity between the local players in these markets is now not only growing across one another’s borders but also helping the local players in gaining insights and experience on how to best serve one another’s markets. Global companies operating in mature economies are mostly unaware of these local advantages and the environment. According to Accenture Research, the increased business activity has displaced United States to China as the largest trading partner to India and Brazil. What’s interesting is that in spite of providing a lucrative opportunity to its trading partners and companies, a majority of these markets remains underserved in terms of functional, modern logistics facilities and adequate transport structure. These market challenges not only present certain challenges in establishing operations and realizing competitive strategy but also necessitate changes in supply chains beyond adapting the existing strategies used in developed countries. How organizations are responding to these challenges is a matter of organizational choice based on the company strategy. However, there are organizations that have started responding to the opportunity afforded by emerging markets by first working closely with their sales and product teams to understand the differentiated product and service needs of these markets. Leaders are designing the right supply chain organizations and networks to best serve these needs within a broader global supply chain strategy. Progressive companies are investing in identifying consumer segments in particular cities or customer segments that go beyond the borders. A classic case on this front is for P&G which identified needs of male consumers in areas with scarce water supplies and designed grooming products for this group in multiple markets.
In this thesis, we investigate the opportunities and challenges of managing effective supply chains in Emerging Markets. The purpose of writing this paper is to find the factors, which will help emerging countries to grow faster. It talks about real challenges faced by big companies to enter in these markets. Step by step study is necessary to understand the market situation in these countries and local requirements. Many companies failed in these emerging markets, because they applied their global strategy here. But they forgot to understand that, these markets are different from developed market and need local strategy. Here in this paper, we will discuss about localisation and how to implement localisation.
Furthermore, the purpose of this thesis is to provide a helicopter view of the emerging market business landscape, and map important pitfalls, roadblocks and obstacles. We also look at the opportunities and the paths that some multinational firms have considered. In the not so distant past, military operations, hyperinflation and crippling foreign debt dominated our headlines when developing nations were discussed. Brazil was often lamented as the country of tomorrow, while the Chinese dragon and the Indian tiger were mere images for children’s books. The past decade has brought remarkable changes; a monumental shift in the economic balance of power that is already radically changing how and where anyone do their business. Many would argue that the term itself may no longer always be appropriate; many emerging markets have already “emerged” and are soon due an adjustment in status. Choice of words aside, emerging markets have become integral players in the world economy. As growth has slowed in the US and Europe, it is critical for exporting businesses to understand the opportunities and challenges that these “new” markets provide and to implement effective business development strategies. While most of the developed countries are still struggling after 2008/9 economic crisis, emerging markets continue to grow, most having rebounded strongly. Most of the key emerging economies like China, India and Brazil are experiencing exceptional economic strength. And nearterm growth is forecast to continue to be strong. In fact, emerging markets stand to outgrow the developed counterparts by more than 4% per annum. More eyecatching is that over 70% of the world’s growth in the next several years will come from emerging markets. But still there is wide gap to fill between developed and developing countries. The overall growth in wealth is staggering. That future, spurred by a rising tide of global uncertainty and business complexity, is coming sooner than many companies expect. Some of the challenges (turbulent trade and Developed & Emerging Market Growth 2008-2014
Market Growth and Gap (Developed vs. Emerging Market) LOGISTICS TIMES December 2013
capital flows, for example) represent perennial supply chain worries turbocharged by the recent downturn. Yet other shifts, such as those associated with the developing world’s rising wealth and the emergence of credible suppliers from these markets will have supply chain implications for decades to come. The bottom line for would-be architects of manufacturing and supply chain strategies is a greater risk of making key decisions that become uneconomic as a result of forces beyond your control.
Asia, Eastern Europe, India and Latin America during the next five years to support delivery of more-localized products and services. Another 39% of companies are attracted to these markets for the low-cost opportunity to resupply demand in their existing markets. No current plans to expand our manufacturing footprint into new developing markets at this time 3%
CHALLENGES & OPPORTUNITIES
Emerging markets are hot, today more than ever. While these lower-cost countries were perceived by multinational firms as an opportunity to benefit from labor cost arbitrage in the past, the trend has changed. Next to radical cost reductions, other key forces are also driving multinational corporations towards globalization and emerging markets. These are: new markets and growth opportunities, technological capabilities, and political and macro-economic incentives. Thus, yesterday’s low-cost countries are now becoming tomorrow’s new markets and strategic locations to tap into local technologies and know-how. A global consumer revolution is in the offing – and it will be driven by an unprecedented expansion of the world’s middle class. Almost 3 bn people – more than 40% of today’s population – will join the middle classes by 2050 and these entrants are to be found almost exclusively in today’s emerging markets. HSBC in their report (Consumers in 2050) projected that emerging market consumption could make up almost two-thirds of global consumption in 2050, compared to around one-third today. Clearly emerging market would be the source of future growth and was reflected in a recent Gartner survey of CEOs and senior business executives, in which they indicated concern about a continued recession in advanced economies. As business executives look to emerging markets for opportunity, the supply chain organization will be tasked with serving that growth. While this presents a challenge for organizations, the opportunity is quite clear. MNC are now exploring emerging markets either to • Support delivery of more-localized products and services • Low-cost opportunity to resupply demand in their existing markets A recent Gartner study in Figure 3, on global manufacturing strategy found that greater than 55% of all respondents — including 70% of C-level respondents — identified growth as the primary purpose for expanding their manufacturing footprints further into LOGISTICS TIMES December 2013
Investing in local manufacturing to capitalize in EMs
However, emerging markets have their own challenges, ranging from poor physical infrastructure, inexistent distribution channels and a fragmented supplier base to a lack of transparent regulations. This can cause effective time-tested supply chain management practices that work in developed countries, to fail terribly when applied in emerging economies. Multi-national firms entering these markets therefore often need to adapt their existing supply chain strategies to the uniqueness of each emerging market or develop newer ones for that environment. Challenges in emerging markets: • Regulatory or tax requirements. • Need to build local talent or teams • Adapting supply chains to local market needs. • Highly fragmented demand with customer base spread across many rural and urban locations. • Unreliable infrastructure and poor transit systems hindering transportation, limited technology a barrier to communication required to support physical products and information flows. • Local supply capabilities inconsistent. • Political and regulatory instability affect market access and make long-term supply chain investment and partnering strategies risky tasks. • Value chain activities increasingly complex – visibility limited Emerging markets are an example of risk versus reward. Companies may reduce risk by understanding the environment and cultural differences before entering these markets, and by selecting project leaders who have hands-on experience operating in the region
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and working with their sales and product teams to understand the differentiated product and service needs of these markets. It also helps to establish relationships with local companies that have experience in helping to reduce risk and costs. As with any new market, establishing the right supply chain starts with understanding the unique customer requirements that influence demand. Designing and implementing the extended supply network requires applying the right strategies and best practices while managing the unique eco-system within emerging markets. In order to reach local emerging markets, companies need to splinter their traditional monolithic supply chains into smaller and more flexible ones. When these new supply chains may rely on the same type of assets and network resources similar to the old, they use information quite differently—helping companies to embrace complexity while better serving customers. This needs companies to examine its portfolio of products and components along two dimensions: the volatility of demand for each SKU it sold and the overall volume of SKUs produced per week. Armed with the resulting matrix (Figure 4), the companies can then begin rethinking its supply chain configuration .
as dynamic hedges against uncertainty by actively and regularly examining—even reconfiguring—their broader supply networks with an eye toward economic conditions five or ten years ahead. In doing so, these companies are building diverse and more resilient portfolios of supply chain assets that will be better suited to thrive in a more uncertain world. Splintering will help companies to take variations of one of the following three general product supply structures: 1. Out-of-market supply for entire product 2. Local assembly with out-of-market supply for components or subassemblies 3. Local production and assembly
Fig: Supply Strategies with Selected Drivers, Advantages & Disadvantages Partnering and Outsourcing Decisions to Enable the Supply Chain
Evaluating an emerging market’s supply chain strategy can’t be done in a vacuum. It must be viewed within a global strategy. Logistics is the most commonly outsourced supply chain process globally, but deciding to partner to serve a specific emerging market must be assessed carefully. Investing in your own distribution capability depends on several market-specific factors including political stability, infrastructure, and the local supply capabilities available. Fig: Splintering Approach for Managing SCM issues
While dividing a supply chain into splinters may seem very complicated, but in fact this approach allows companies to reduce complexity and manage it better because operational assets can be focused on tasks they’re best equipped to handle. At the same time, the added visibility that a splintered approach offers into the guts of a supply chain helps senior managers more effectively employ traditional improvement tools that would have been too overwhelming to tackle before. Second, leading companies treat their supply chains LOGISTICS TIMES December 2013
As the world renowned boxer Mike Tyson once said: “Everybody has a plan until they get punched in the face.” So the trick to emerging markets, as in boxing, is to keep moving.
Many organizations overlook the capabilities of the more localized service providers in emerging markets. They often select their global incumbent providers, assuming that their emerging market operations will reflect their global capabilities. Many global third-party logistics (3PL) providers offer services via company-owned assets and through a series of strategic partners across emerging markets. This outsourced approach can reduce a 3PL providerâ€™s ability to control and standardize service delivery, provide milestone visibility, reduce overall costs, and properly administer vendor management programs and quality processes in that particular country. Outsourcing logistic processes offers many advantages, especially for a corporation that is expanding overseas. When entering the developing market, outside firm may not be familiar with the tax system, local regulations, import/export policies and the local culture. In addition, building your own logistics and distribution network from scratch would be a highly resourceconsuming endeavour, given the huge diversity in geographic conditions, in the state of the infrastructure and in consumer habits. Integrated end-to-end logistics operations that are managed by an experienced 3PL provider, who has long been operating in developing countries, could help organization achieve its goals more effectively. It would also allow firm to focus on its core competencies, reduce costs, improve its service level and release capital that can then be used more productively. A 3PL provider, who offers an extensive array of logistics solutions can relieve a firm from huge logistics costs and alleviate the hassle of dealing with several incoherent logistics services providers (LSP).
Many organizations overlook the capabilities of the more localized service providers in emerging markets. They often select their global incumbent providers, assuming that their emerging market operations will reflect their global capabilities.
Achieve Sustainable Business Performance by Managing Resources and Visibility The emerging markets opportunity must be assessed against the backdrop of a broader series of global megatrends on the horizon that will impact shifting demand and resources. Supply chain and business leaders must review these emerging trends through the lens of their own strategic plans and as part of their own trend scan on a regular basis. Finding, developing, and retaining talent are key challenges for organizations. Increasing competition for top talent, and a lack of formal education on
supply chain disciplines in these regions, can lead many organizations to feel like they have a revolving door when it comes to hiring and training. Finding the right balance of global/local leadership in emerging markets, and leveraging global talent processes and systems, are other challenges that must be addressed
In our approach, we tried to get the ease of business in emerging market. We shortlisted different factors with respect to developed countries and fit the four major emerging markets. We called it mapping Contexts in Brazil, Russia, India, and China. The different contexts (Table I), points can help companies spot the institutional voids in any country. An application of the framework to the four fastestgrowing markets in the world reveals how different those countries are from developed nations and, more important, from one another. Context Brazil Political Structure 2 Civil Society 3 Modes of Entry 4 Product Development 3 Intellectual Property Rights 3 Supplier Base & Logistics 3 Brand Perception & Management 3 Market for Managers 3 Workers Market 2 Capital Market 3 Total 29
Russia 3 3 3 3 3 4
India 2 3 4 3 3 2
China 1 2 2 2 2 3
4 4 3 3 33
3 4 2 3 29
4 2 4 2 24
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TABLE I US/EU IS BENCHMARK AND RATED 5 ON THESE SCALES. 5 MEANS HIGH FAVORABLE FOR BUSINESS AND 1 MEANS LESS FAVORABLE
On the basis of above table, we can easily point out that for different emerging market, issues are different. If a company tries to apply the same strategy, then definitely it will fail in future. So it’s very important to understand each and every market differently and take action according to that. Relatively Russia has more ease of doing business than Brazil and India. Similarly China has less ease of doing business among mentioned emerging markets. Top issues in the mind of major logistics company We also tried to find the real problems faced by many companies in logistics industry. Table II, which collects major issues from different companies, shows that there are challenges ahead for growing in emerging markets. Multinationals may have to adapt to the voids in a country’s product markets, its input markets, or both. But companies must retain their core business propositions even as they adapt their business models. While companies can’t use the same strategies in all developing countries, they can generate synergies by treating different markets as part of a system.
Companies in emerging markets ideally rely on decentralized operations with critical mass tailored to the local market needs. Companies try to implant global best practices when possible, but with a mix of local flavour. Serving the emerging markets, identified mostly by fragmented demand, extraordinary variations amongst the countries will require multiple supply chains tailored to specific needs of the target market supported by locally developed capabilities and talent. At the same time the Supply Chains will be required to be flexible enough to accommodate any rapid changes which these markets are often prone to. Most of the established organizations in the developed world are known to place a high value of integrated operation, but operations in emerging markets definitely need a shift from “integrated” to “dynamic” supply chain requiring to build responsive ecosystems of people, process and technologies. Companies planning to enter or vying for further growth need to rethink their supply chains. Successful companies can be the ones who have differentiated themselves with strong demand planning capabilities and segmented supply LOGISTICS TIMES December 2013
Localization Reverse Logistics Customer Satisfaction
United Airlines Cargo
Information Technology Localization Green Supply Chain
Supply Chain Integration Environment Issues
Future Logistics, Inc.
Managing Change Global Business
Sebang Co., Ltd
Financial Issues Local Market Forecasting
Supply Chain Management Reverse Logistics Customer Satisfaction
UTi Worldwide Inc.
Environment Issues Partnering with 3rd Party Information Technology
Standardization Global Market Stability
TABLE II REAL ISSUES FOR COMPANIES
strategies to mitigate risks and capitalize on market opportunity. Operating in emerging markets can sometimes be comparable to planning for battle. But then “In preparing for battle, I have always found that plans are useless, but planning is indispensable”, said United States President and World War II General Dwight D. Eisenhower once, also seems to be true. So then what’s the best strategy to defence and success? Well the key again would be planning but in continuity and at the same time investing in the emerging market as they evolve through supply chain tactics. As the world renowned boxer Mike Tyson once said: “Everybody has a plan until they get punched in the face.” So the trick to emerging markets, as in boxing, is to keep moving. Always be revising based on market changes that will surely occur, undoubtedly at faster rates than expected; always be planning and never set a plan in stone. (Paper authored by Vikas Panchal, Gagan Seth and Brajesh Kumar of JDA Software India) Courtesy: BIMTECH
A tough code to crack?
Aditya Gupta Zonal Business Head â€“ North, DIESL
Sustainable or Green Supply Chain is now regarded among the key strategic enablers gearing organizations towards longterm profitability. As companies progress towards triple bottom line reporting, sustainable supply chains are gaining significance, as after manufacturing, supply chain is single largest contributor to the carbon footprint of any organization. In US and other developed countries efforts are already being
country which accounts for 15% of the world population, Indiaâ€™s share of the world trade at 1.5%, is still abysmally low. Warehousing Developing sustainable warehousing practices would mean focusing on the following areas:
1. Strategically placed Warehouses and Distribution Centers (DC) 2. Improved Warehouse Layout,
It remains a matter of great debate if Green Supply Chain will really act a success factor in an emerging economy like India where we are still struggling for success in our supply chain processes & operations. made by companies to measure and reduce the supply chain carbon foot print. Some of the organizations like TESCO, Dell, and Marks and Spencer have taken several strides towards carbon neutrality. However it remains a matter of great debate if Green Supply Chain will really act a success factor in an emerging economy like India where we are still struggling for success in our supply chain processes and operations. For a
Use of PEB structure with proper lighting and ventilation. 3. Use of fuel efficient machines and tools The Indian taxation structure mandates holding a DC or warehouse in every state. All modern tools on network design come to naught when pitted against Indian Sales Tax system. It takes not less than Rs. 800 per square feet to build a new modern PEB structure warehouse. This is LOGISTICS TIMES December 2013
compounded by the interest cost which would be at least Rs. 12 per month per square feet. Add to this the cost of land, and the rental per month almost doubles. For a country which is used to paying rentals in single digits, these costs are a complete No-No. Several analysis have shown that labor costs in India are still low as compared to costs incurred in mechanized, low manpower operations. Sourcing Sustainable supply chain practice suggests the following focus areas in the domain of sourcing:
1. Enable cleaner sourcing/ manufacturing 2. Collaborate with suppliers for green initiatives 3. Localize sourcing for JIT. Reduce transit distances. Lower emission in transit 4. Eco friendly packaging 5. Technical Support to vendors to reduce foot print 6. Reverse Logistics to reuse or refurbish Cleaner manufacturing would mean better technology and lesser LOGISTICS TIMES December 2013
wastes. Indian SSI companies are at present struggling to adopt such technologies. Indian companies do try to localize their sourcing as close to factory as possible. However, it may not be possible in every case. While India boasts of manufacturing zones which are strong in different sectors, the awareness of environment friendly packaging is still minimal. Optimization measures pressurize packaging teams to do their jobs at minimum possible cost. Except for some companies in Auto or Electronics sector, reverse logistics is not a viable option in India. The cost of reverse logistics is much bigger than the value we could extract out of it. Transportation Making transportation operations sustainable demands focusing on the following areas:
1. Consolidation of LTL or Milk run for Inbound and outbound 2. Optimizing truck loads. 3. Rerouting fleet vehicles. 4. Use of Rail or Multi Modal model.
5. Use of back haul. 6. Reducing total volume or mass shipped. 7. Consolidated movements. In India, Rail has been increasingly losing its share to road for distribution. Coastal and Inland waterways are still nascent, hence road transportation despite being not so emission-friendly, will continue to hold the prime position in carrying Indian freight. India freight exchange market is still not evolved here to ensure easy back haul for transporters. Our check nakas and toll booths continue to guzzle fuel, increase cost and impact agility. In addition, Indian road conditions do not allow fuel efficiencies to be built in. We are still transporting lot of freight in fuel inefficient vehicles. Thus, while in an ideal situation green supply chain practices can lead to lesser waste, better asset utilization, lower emissions, and reduced fuel consumption, in a developing economy like India, we still have a distance to go, before we can think about strategic enablement and better bottom lines by adopting sustainable supply chain practices.
Subdued growth in rentals Noted real estate research and consultancy firm CBRE released its "India Logistics Market View Report (H2 2012)" recently. The report
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highlights the warehousing rental trends in important locations in the country which were in a subdued zone in the stated period. Here is the concluding part of the report...
LOGISTICS TIMES December 2013
Market Summary The North corridor of Doddaballapur Road and Bellary Road consists of industrial units and has sparse presence of third party logistics players. The micromarket did not witness launch of any new warehousing projects in the second half of 2012. However, around 20,000 sf of second generation Grade A warehouse space was released on Bellary Road. In addition,around 50,000 sf of second generation space in Grade B developments also became available for leasing in Doddaballapur Road. Built-to-suit (BTS) options were also available for tenants looking to develop facilities with customized specifications.As a result of limited transaction activity and negligible supply addition, rental values remained largely stable during the review period. The East Corridor comprising of Whitefield,parts of NH207, Soukya Road, parts of Old Madras Road, Hoskote and surrounding areas continued to remain a favored destination for third party logistic (3PL) and other supply chain players. Factors that have contributed to the growth and expansion of this micro-market include presence of an inland container depot with container freight station and ease of accessibility to the Bangalore International Airport and other regions of the state. This micro market witnessed active leasing activity; companies such asYamaha and Fusion Logistics took up space during this period. Narsapura in Kolar district is emerging as a major hub with many auto makers planning to set up factories in this region. Companies such as Honda Motorcycle and Scooters India, Swedish truckmaker Scania, Mahindra Aerospace are setting up industrial units in this region. Land LOGISTICS TIMES December 2013
owners and warehouse infrastructure development companies are offering built to suit options with ample scope for future expansion. Various projects ranging from 45,000 sf to 250,000 sf are in different stages of execution. One such example is that of Gokaldas Warehousing C o r p o r a t i o n constructing a builtto-suit facility with an area of around 250,000 sf in Hoskote. Transaction activity was strong in the West Corridor of Tumkur Road, Kunigal Road, DoddaballapuraNelamangala Road and surrounding areas. Paragon leased around 0.1 million sf, Godrej and Boyce leased around 0.15 million sf, while Imperial logistics took up around 30,000 sf in Nelamangala. This corridor assumes significance due to ease of connectivity with other parts of the state. Similar to the East Corridor, landowners in this micro-market are also trying to attract tenants by offering BTS facilities at attractive pricing. The South Corridor includes areas of Hosur Road, Electronics City, Bommasandra Industrial Area, Jigani Industrial Area, Attibele Industrial Area and Veerasandra Industrial Area. Leasing activity continued to remain strong; approximately 0.15 millions of warehousing space was leased by Puma and about 30,000 sf was leased by P & G during the second half of 2012. On the supply side, around 70,000 sf of fresh warehousing space and about 0.1 million sf of second generation space became available for leasing
during the second half of 2012. Additionally, built to suit (BTS) options were also available for tenants looking to develop facilities with customized specifications. Outlook Several new projects have been planned and are under various stages of construction in the Eastern Corridor with project sizes ranging from 45,000 sf - 250,000 sf. These are expected to be ready by the second half of 2013. Built-tosuit (BTS) will continue to remain the preferred mode of development by both the land owners and 3PL players. Land owners are guaranteed of occupation mitigating the tenancy risk and 3PL players are guaranteed of facilities that suit their requirements-thereby improving efficiency of warehousing operations. With demand expected to register an increase in the coming quarters, rents are likely to appreciate across most micro-markets in and around the city.
LOGISTICS TIMES December 2013
Market Summary The Western Industrial belt comprising of areas such as Oragadam, Sriperumbudur, Thiruvallur, Vallamand and Paddapai witnessed heightened activity and interest from auto and other ancillary companies with absorption recorded at around 0.1 milion sf during the second half of 2012. Approximately 0.4 million sf warehousing space was added to the existing stock. Owing to increase in demand and lack of quality supply, rental values in this micro-market appreciated marginally by 2-3% during this review period. The North Chennai micromarket encompassing areas of Madhavaram, Manali, Puzhal, Kavarapettai and Red-Hills witnessed encouraging transaction activity compared to other micro markets. Demand has observed an increase and is mainly led by third party logistics companies due to the easy access to seaports. Absorption was recorded at around 0.3 million sf and approximately 1 million sf fresh warehousing space was released into this micro-market. Owing to increased demand levels for quality warehouse space, rental values in this micro-market appreciated by 7-8% compared to the first half of 2012. Transaction activity in the Chennai Southern Industrial belt along the GSTR road remained limited to Mahindra World City with number of multinational companies setting up operations during this period. MWC and Maraimalai Nagar observed enhanced demand owing to close proximity to Oragadam, key industrial hub of the city. Other locations such as Perungudi and Shollingnallur did not witness substantial demand for logistics space during this review period. Outlook Large warehouse developments LOGISTICS TIMES December 2013
Owing to increased demand levels for quality warehouse space, rental values in this micro-market appreciated by 7-8% compared to the first half of 2012. planned by private players such as Agility, NDR Warehousing, etc. in North Chennai is likely to be completed by Q2 2013 and will add around 0.5 millions sf to the warehouse stock. Also, Realterm Indospace has launched anew warehousing project in Oragadam, spread over 0.6 million sf, likely to be completed by the end of 2013. Moderate demand and abundant supply is likely to result in to stability in rental values for the next few quarters. However, demand for industrial sheds will continue to move on an upward trajectory in Oragadam and Sriperumbudur, largely due to the presence of manufacturing giants such as Renault Nissan, Ford and Hyundai. Hyderabad
Market Summary Over the past few years, the regions of Kompally and Medchal (located alongNH-44) have emerged as the prime logistic hubs of the Greater
Hyderabad region. However, demand was largely stagnant during the review period, which made developers cautious about the upcoming warehouse developments
in the region. On the supply side, approximately 0.6 million sf (includes secondary space) of warehousing space became available for leasing. However, demand was focused more on BTS developments. Rental values appreciated by about 5-6% during the review period, compared to the first half of 2012. Located along NH-9, Pathancheru micro-market is largely characterized by industrial developments. During this review period, no new projects were announced in this corridor; rental values remained largely stable and were in the range of INR 7-8/sf/ month. The size of warehouses range between 15,000-50,000 sf and BTS is the option for tenants looking for larger floor plates. The Outer Ring Road (ORR) Phase II Astretch from Patancheru to Shamshabad is fully operational, while ORRP has eIIB from Patancheru to Pedda Amberpet is likely to become operational by the end of 2013. This will improve connectivity and witness enhanced demand forware houses in this micromarket. Major occupiers such as Future Group, HUL have consolidated their base to this micro-market and are looking for facilities with large floor plates ranging from 100,000 sf to 200,000 sf. Outlook Hyderabad is expected to witness addition of 0.2 million sf of fresh warehouse space (independent buildings) in the next six months. The Outer Ring Road (ORR) is expected to be fully operational by end of 2013 and this will improve the connectivity of various warehousing micro-markets in the region and the airprt. With most of the polluting industries relocating to the city outskirts, industrial lands in areas such as Jeedimetla, Moula-Ali, Nacharam, Mallapur and Cherlapally will be converted to warehouses
Hyderabad is expected to witness addition of 0.2 million sf of fresh warehouse space (independent buildings) in the next six months.
and might result in making the sear east hemost preferred location for
LOGISTICS TIMES December 2013
MarketSummary Due to its strategic location and efficient infrastructure, the micro-markets of Chakanand and Talegaon (on NH-4) continued to remain the preferred destinations for manufacturing companies keen on expanding their foot print in India. Due to large presence of manufacturing companies, this micro-market witnessed strong demand for quality warehousing space. Amongs the notable developments in these micromarkets, KSHD tri parks launched a 16-acre multimodal logistics and industrial park at MIDC Talegaon; Renault Nissan has already pre-committed around 40,000 sf in this development. Indo Space commenced operations of its first phase (around 0.4 million sf) of integrated industrial park project in Chakan. Spread across 100 acre, the park will be launched in multiple phases. On completion of all phases, the project will have a total built-up area of 1.7 million sf spread across eight buildings. The completion of the se large scale warehousing parks led to a healthy demand supply balance in the semicro-markets, which resulted in stability in rental values during the review period. The Eastern region of Sanaswadi and Ranjanga on(located on NH-27) did not witness any supply addition during the second half of 2012. Absorption was largely witnessed in built to suit (BTS) industrial sheds. Rental values remained stable and were in the range of INR 20-25/sf/month. The Pimpri and Chinchwad micro market did not witness any transaction activity during the second half of 2012. The warehouse units present in this corridor are entitled to pay Octroi duties. Consequently, despite having good connectivity and quality infrastructure,occupiers prefer to locate in other micro markets in the city. Outlook Enhanced demand levels and lack of land parcels in the Northern and Eastern regions will continue to lead appreciation in land values in these location. This will continue to influence most of the 3PL players to move to more cost effective options in and around the city. On the supply front, Mercedes Benz is planning to construct around 0.15 million sf of warehouse space; while Realterm Group is constructing Indospace Logistics Park in Chakan by early 2014.In addition, construction work has commenced on a 50-acre industrial park at Ranjangaon,
Mercedes Benz is planning to construct around 0.15 million sf of warehouse space; while Realterm Group is constructing Indospace Logistics Park in Chakan by early 2014.
LOGISTICS TIMES December 2013
being jointly developed by the Panchshil Group and the Kohinoor Group. (Courtesy: CBRE, South Asia)
EDUCATION & TRAINING
Preparing aviation professionals The aviation sector and hospitality to ensure that enough qualified and sectors are closely linked. Growth in competent aviation professionals the hospitality sector will definitely would be available to operate, give a boost to all modes of manage, and maintain the future transportation, especially the aviation international air transport system. industry. The Indian aviation sector The growth in aviation and related has witnessed phenomenal growth industries is also witnessing high in the past few decades and has manpower attrition and shortage acquired the 9th place in the world within and outside the industry. in the terms of civil aviation and To boost human resource retention Dr. Veni Mathur 4th place in the domestic passenger at company level, industry players Ex-faculty, IIT, Delhi volumes with a market size of US$ need to address issues like pay Dean, Million Minds 12 billion. According to Airport competitiveness, measures to upAuthority of India (AAI), passenger grade their skills and enhance the handling capacity has risen two fold manpower pool and offer them from 72 million (in 2006) to 143 long-term career opportunities. million (2011) and freight traffic To achieve this emphasis needs T o from 1.5 million tonnes (2006) to be made upon increasing to 2.3 million tonnes (2011). productivity, job redesign boost human Even in the face of such and improvement on fantastic growth rates, work processes. To resource retention at the aviation industry keep ahead of the company level, industry is facing several competition, the challenges - the most industry needs to players need to address important being reach out to the talent management. and build issues like pay competitiveness, youth Some of the relevant a strong core of highlights of the specialists measures to up-grade their skills aviation aviation industry and professionals. are: and enhance the manpower pool The industry will About 15% of need technicians, the aviation staff engineers, pilots, and offer them long-term is employed for cabin crew and safety career opportunities. monitoring passenger personnel. Training is a movement. must. The average age of the To bridge the gap between staff is 41 years. demand and supply of manpower 56% of them are male. efforts of the government, trade 77% of the employers provide associations and industry players training to their staff. This technicians and 350,000 pilots to must come forward. is inadequate to meet the fly the 25,000 new aircrafts that are The view of Dr.Harold, Director, challenges. going to be added to the existing Council of Nigeria Civil Aviation According to Aviation Report 2012, fleet to meet the increasing demand Authority is of significance here, this sector needs to bridge the skill for travel. Asia, being the core center â€œwhile men are prone to constant gaps and tackle the issue of ageing for this growth will be faced with migration, women are more stableâ€?. workforce. skilled manpower shortage. This His belief in the concept of training According to International Civil significant short fall in the aviation of women aviation professionals Aviation Organizationâ€™s estimation professionals has led to ICAO to to take over from ageing current for the year 2026 - the aviation launch the Next Generation of skilled aviation professionals may industry would need 480,000 new Aviation (NGAP) initiative in 2008, be a good solution. LOGISTICS TIMES December 2013
At present the aviation industry is facing a crisis due to lack of skilled personnel/ staff to meet increasing customer expectations and technology changes. The highest level of skill gaps are all around the ability to monitor and solve customer related problems (59%), commitment to security measures and emerging landing skills (59%) and weather monitoring abilities (58%). This proves the point that aviation staff can become more effective with additional training. Liberalization and Open Sky Policy of the government has led to greater private sector participation and foreign investment. Besides, high disposable income and growth of low cost airlines has led to an increase in domestic travel and the consequent rise in hotel and restaurants business and demand for quality service by the customers. Action Plan for India
To promote a world class National Aviation University to meet the growing demand for training for aviation industry. Encourage private sector investment
in training and academics to produce highly skilled human resource. The growth in civil aviation has given a thrust to modernization of airports, communication, navigation and surveillance systems, facilities
for maintenance and repair besides manpower needs of the hospitality industry. This means there is great need for trained and skilled manpower in all these sectors.
LOGISTICS TIMES December 2013
Cold Chain Financing
PHD Chamber organised a National Conference on Cold Chain Financing on 10th December in Delhi. The conference brought together an impressive gathering of representatives from the banking sector as well as cold chain industry. The inaugural address was delivered by Dr. Saumitra Chaudhuri, Member, Planning Commission. Other important speakers at the conference were: Sanjeev Chopra, IAS, Joint Secretary & Mission Director, National Horticulture Mission, Ministry of Agriculture; Vinod Asthana, MD, CRWC; Pawanexh Kohli, Chief Advisor, NCCD; R S Bedi, Chairman, Task Force on Logistics Management, PHD Chamber; Dr. Rakesh Gupta, GM, Punjab National Bank; Amit Bhatnagar, VP, Kotak Mahindra Bank; and Raveendra Sahani, Asst. VP, HDFC. LOGISTICS TIMES December 2013
Supply Chain Skilling Partner
Safeducate, a specialist in supply chain & logistics training, has unfolded major plans to bridge the massive skill gaps present in the Indian supply chain & logistics industry. The company was ‘Supply Chain Skilling Partner’ in the CII National Conference for Skill Development 2013 held recently in Delhi. The CII conference was organized at The Lalit Hotel, New Delhi on 28th of November, 2013. Many eminent speakers from the industry were present in the conference to share their views on the requirement of good quality manpower for better economic growth of the country. These included Som Mittal, President – Nasscom; Rajeev Dubey, President – Group HR, Corporate Services & Aftermarket, Mahindra & Mahindra; S Mahalingam, Chairman – CII National Committee on Skill Development and Divya Jain, CEO, Safeducate.
FedEx Cares Week FedEx Express celebrated its third annual FedEx Cares Week in India recently. This annual community event provides volunteer and service opportunities for FedEx team members. FedEx Cares is an annual global volunteering initiative where FedEx team members and their families donate their personal time and effort in giving back to their local communities. FedEx Cares Week was held from October 1 – 15, 2013 in 16 cities across India. In total, 1620 FedEx team members were involved in various activities, clocking more than 3400 hours of volunteer work and reaching out to 2200 children. The activities included blood donation drives, visits to children’s hospitals, and organizing talent shows and competitions at orphanages, child autism centers and schools for children with special needs.
LOGISTICS TIMESS December 2013
EVENT EVENTS ENTS
Supply Chain Security
Air Cargo Forum India (ACFI) organized a half day conference on ‘’Air Cargo Supply Chain Security – Future Outlook” covering overall security scenario in the aviation industry and particularly on security related issues and challenges in Air Cargo Supply Chain last month in Delhi. The event which was organized on 27th November at Radisson Blu saw participation of several senior members of air cargo fraternity. LOGISTICS TIMES December 2013
RNI No. DELENG/2011/39329
Regd No.: DL(E)-20/5380/2011-13