Lt june 2015 net by Raj Misra

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L CIA SPE ING OUS REH WA

LOGISTICS TIMES INDIA’S MOST VALUED SUPPLY CHAIN MAGAZINE

June 2015, `50

THE MAGIC POTION?

GST:

Logistics Times

Volume V Issue 12, June 2015

IN THIS ISSUE...

Editor-in-Chief Raj Misra rajmisra@logisticstimes.net Editorial Advisor Ramesh Kumar supplychaindia@gmail.com Business Head S K Hussain hussain@logisticstimes.net Design Head Shahla Alam Circulation Head Sushil Sharma Photographer Kausar Legal Advisor Rakesh Garg

Editorial Advisor Board Paul Lim Fopunder & President, Supply Chain Asia Pawanesh Kohli CEO/Chief Advisor, NCCD Wayne Hunt MD, AsiaPac Executive Insights Pte Ltd, Singapore Harry Lagad Executive Director, 7 Hills Global Consulting P Ltd Kate Vitasek Faculty, University of Tennessee College of Business Administration Samir Srivastava Professor, IIM Lucknow Prof Akhil Chandra Institute of Logistics & Aviation Management

Marketing Coordinator Ph:011-22478538-39, 9990473003 advt@logisticstimes.net Printer & Publisher Deepa Misra for

D-608, West Vinod Nagar, Delhi - 110092 Tel: +91 11 22478538-39, Fax: +91 11 22471764 Printed at Personal Graphics & Advertisers Pvt. Ltd. Y-22, Okhla Industrial Area - II, New Delhi - 110020 www.logisticsimes.in

WAREHOUSE SPECIAL

GST:

THE MAGIC POTION?

15 PERSPECTIVE 10 things that can disrupt your outsourcing relationship

20 WAREHOUSE SPECIAL

‘Ware’ do you house your grains?

& LITERATURE 48 LOGISTICS Reading Rose George

News Briefs Last Page

DIARY 34 VISITOR Godzilla godown... oops, Warehouse!

April 2015 LOGISTIC TIMES

Regular

09 50

EDITOR’S NOTE Raj Misra

You would have never expected me on this page. But now, yes. Though the magazine has been in existence for more than five years, I deliberately took a backseat thus leaving the task of putting this magazine together in the able hands of more seasoned professionals. To put it in perspective, Ritwik Sinha – one of the founder-editors - has moved out to pursue new goals in his career. It was a wonderful journey we had together. Of course, we will miss his valuable inputs. We wish him all the best in his new endeavor. Meanwhile … The industry is transforming. The bourses are trading more logistics companies today than in the past. VRL Logistics is the new babe on the ticker, giving company to the likes of TCI, Gati, AllCargo, Snowan etc. More to follow. In this issue, we are turning the spotlight on the hot button issue: what impact the GST will have on the logistics and supply chain domain and the economy as a whole. A big thanks to the industry stalwarts who gladly wore their thinking hats to spell out what they see in their respective crystal ball in the wake of GST roll out.

Hope you will enjoy.

rajmisra@logisticstimes.net or 9958760555

June 2015 LOGISTICS TIMES

Associations worried with no growth scenario In the face of slow global demand for merchandise, India’s exports in the current financial year are likely to stay flat or may even move backward of USD 310 billion, the figure achieved in 2014-15, according to a recent assessment made by ASSOCHAM. While it has been a weak trend since July 2014, exports have been witnessing contractions since January this year right through April. “In fact, generally the last quarter of the fiscal turns out to be much better to make up for the previous quarters. However, it has been a different situation in the last quarter of fiscal 201415 and the first month of 2015-16,” the ASSOCHAM paper said. Engineering products, gems and jewellery and petroleum products are the biggest contributors to the overall export basket in terms of value. In the previous fiscal, while engineering goods registered a modest increase, the other two segments have been witnessing sharp drop. The trend is likely to continue at least for gems and jewellery, while the situation may somewhat stabilize for the petroleum segment since after seeing a sharp fall, the crude oil prices have stopped seeing much of drop. Petroleum exports are related to the prices of crude oil. According to the ASSOCHAM paper, the US is still not firm in growth as was witnessed in the first quarter of 2015 when its economy had contracted. Stronger dollar hit the US exports. In the Euro zone, it was somehow better in Q1 but it is quite puzzling and unsure. The emerging market pack remains in a challenging situation with China adding to the major woes. “Overall the trade confidence is quite muted,” a senior official said impressing on the government to move fast on improving ease of doing business and reduce the transaction costs for the Indian shipments. Going forward, the merchandise exports are likely to average around USD

22-25 billion a month till the end of second quarter of the current fiscal. The shipments would improve thereafter, but the upside remains limited, the paper noted with concern. However, the impact of the flat or some drop in exports would not have major impact on the trade balance since imports too would remain in muted form because of the poor consumption demand in the domestic Indian economy. Imports too would remain between USD 440-450 billion in the current fiscal ---more or less in sync with the previous year. “ASSOCHAM agrees with the assessment of the RBI which had stated in its credit policy that the net exports are, unlikely to contribute as much to growth as did in the past,” the paper said. Meanwhile, reacting to the sharp decline on the trade data for May 2015, S C Ralhan, President, Federation of Indian Export Organisations (FIEO) said that the continuous negative double growth in exports since December 2014, is matter of serious and grave concern as the decline has further exasperated to over the 20% in May 2015. This, if allowed to continue will severely impact the Indian economy. FIEO has been continuously raising this serious concern with the government,

June 2015 LOGISTICS TIMES

said Mr Ralhan. However with such kind of steep decline, FIEO expects that the government should take a serious note and act fast to arrest the decline. FIEO Chief stated that the prime reason continues to be low prices of crude, metal and commodity. Petroleum exports further declined sharply by 59.10% which itself is responsible for an overall decline of about 12%, as the sector used to contribute to 20% of country’s exports. Ralhan further said that decline in exports of Engineering Goods, Gems & Jewellery, Organic & Inorganic chemicals, Drugs & Pharmaceuticals, Leather & Leather Products, Electronic Goods and Plastics & Linoleum are of equal concern as these sectors have also either shown further decline or have further moved into negative territory. President FIEO said that emerging economies particularly of Asia are also contracting due to slowing down of China. Ralhan also said that Indian exporters are also losing out their competitiveness due to high logistics cost and ground level transaction costs. Adding to the woes, the services sector have also shown a decline in both exports and imports by around 5% and 20% in April, 2015 respectively as compared to the same period previous fiscal.

NEWS BRIEFS

Grand show of the 1st All India Conclave of Car Carrier Association The 1st All India Conclave of Car Carrier Association, held in Hotel Leela, Gurgaon on 17 June 2015, ended with grand success. Principal-owners of Car Carriers came from all parts of India, to show their solidarity and utilize this new platform. It is launched to represent fraternityâ&#x20AC;&#x2122;s collective interest in dealing with Centre & State governments and other stakeholders. Addressing a huge gathering and Praising the new governments positive approach, to resolve the issues over dimensions, due to ambiguity and lack of standard definitions in CMVR act, President Vipul Nanda stated, that the solution to the vexatious vehicle dimensions, plaguing the Car Carrier business for decades is round the corner. Mr Nanda said the Ministry of Road Transport & Highways (MoRT&H) has bestowed recognition on the Association, by linking it with the High Level joint working Committee, set up under the chairmanship of Prof. AnupChawla, Henry Ford Professor, Indian Institute of Technology-Delhi. According to Mr. Nanda, the Committee is expected to submit its final report to the Ministry by June 30 and then it would be upto the government to decide on follow up action. Later, Mr K KGoyal, Vice President, elaborated on the dimensional issues that are under the consideration of the Committee. Speaking at the Valedictory session, Chief Patron Mr P P Gupta highlighted the need for an organized body at the national level to be heard at the right quarters and welcomed the formation of the Association. Several attendees shared their viewpoints on issues related to the car

carrier industry. Finally all Founder Members of the Governing body, thanked the entire fraternity for their wholehearted participation and assured that the association will only grow stronger by day with their support. The Core Committee Members Are1. Mr. P P Gupta 2. Mr. Vipul Nanda 3. Mr. K KGoyal 4. MrRohit Singh. 5. MrVinodKataria. 6. Mr Shiv Kant Khajuria. 7. MrBhuvan Nanda. 8. Mr G S Saluja. 9. MrRavinder Jain. 10. Mr Om Aggarwal. 11. Mr VishalChaudhary (Ravi) 12. MrVikramGupta. 13. MrNishantSaini The Association is already into action mode. In cooperation with the Ministry of Road Transport & Highways (MoRTH), National Highways Authority of India (NHAI) and Axis Bank, the (ETC)

June 2015 LOGISTICS TIMES

electronic toll collection system via Fastag has been rolled out for car carriers at 440 NHAI toll plazas. The Car Carrier Association also plans to cover the scope of its work as under: 1. To work with the Central Govt. on CMVR ACT for inclusion of Car Carriers with Defined Specifications. Thus, ensuring legalization of our Carriers. 2. To address all problems related to State Governments and RTOs. 3. To work towards integrating Driver verification system &License verification system. 3. To work for the welfare and up skilling of drivers and their families. 4. To jointly work with OEMs constructively without touching any commercial aspect, so as to remove any bottlenecks & smoothen the working relationship. 5. To develop relations with Oil, Spare Parts, Tires and other associated companies to control operating cost for the car carrier owners.

Peel ports and JNPT sign a partnership pact At a formal event presided by Nitin Gadkari, Union Minister of Road Transport, Highways and Shipping in the presence of Anil Desai,Member of Rajya Sabha in Mumbai recently, India’s No.1 Container Terminal Jawaharlal Nehru Port Trust, signed a Letter of Intent (LoI) with major UK ports operator, Peel Ports, who own the Port of Liverpool. This LoI, the first such association between ports in the two countries, was signed by Neeraj Bansal, Chairman JNPT with Peel Ports Chief Executive, Mark Whitworth. Measured by Foreign Direct Investment (FDI), the UK is already the biggest G20 ‘maker’ in India. Last year the UK invested $3.2 billion in India accounting for almost 10% of all FDI flows into India, more than the second and third largest G20 investors into India combined. Likewise, Indian companies are amongst the biggest investors in the UK. The innovations developed through these collaborations have hugely benefited both countries. In 2014, 1.8 million tonnes of goods worth £3.9 billion were exported from the UK to India, with imports of 6.5 million tonnes to a value of £3.3 billion. Container shipping plays a major and increasing role in this trade, especially with initiatives such as ‘Make in India’ introduced by the Government of India, to encourage incountry manufacturing. Under the LoI, JNPT and Peel Ports have agreed to foster the exchange of information and expertise on port operations, port management and hinterland connections. They will also develop a series of modules in education and training of port operators, IT systems, traffic and trade between Liverpool and Mumbai. Union Minister for Shipping, Nitin Gadkari said “We recognise the importance of the historical bilateral interchange between our two countries as

major industrial and commercial partners. There is immense strategic and economic value in our mutual collaboration to propel economic growth in each of our countries. This strategic alliance between these two major ports will drive more efficient movement of goods and will build on our common objective of establishing optimal port performance.” Neeraj Bansal, Chairman JNPT said, “JNPT being the premier container port of India, carries additional responsibility to bring in more efficiency and economy to the exim trade. This new initiative of entering into mutual collaboration with international ports is a path breaking initiative of Ministry of Shipping to create more synergy with the international port community.” According to Mark Whitworth, the Chief Executive of Peel Ports : “The UK and India are natural partners to collaborate and learn from one another. We are facing many similar challenges in supply chain distribution and

June 2015 LOGISTICS TIMES

connectivity. At Peel Ports, we are realising our own ambitious plans in the creation of Liverpool2, a £300m container terminal that will allow some of the world’s largest vessels to call closer to the heart of the UK marketplace. We look forward to working in partnership with JNPT to assist exporters and importers to get their goods closer to market, while reducing costs, carbon and congestion.” John Whitaker, Chairman Peel Group, was in attendance to witness the signing of the letter, which formalises a partnership between the two ports to work together to advance bilateral maritime trade between the UK and India. JNPT currently operates three container terminals, two of which are operated by private companies and a fourth is under construction. The quay wall has already been extended and planning is underway on a major new logistics facility to complement the existing supply chain support available close to the port.

NEWS BRIEFS

Om Group’s new state of the art warehouse Om Logistics Ltd. Inaugurated its new state of the art warehouse in Narsapura, Bangalore in mid-June. Equipped with all modern facilities and connected with major hubs of Om Logistics Ltd., PAN India, this 32,000 Sq. Ft. warehouse will ensure the timely deliveries to all part of the nation. With ample parking space, dedicated Om professionals & fleets, the warehouse fulfills all the compliance of industry standards. It is located just 3 km far from major production hub of Newly developed Narsapura (Kolar Dist, 60 km Away from Bangalore) Industrial Area, which insures JIT deliveries within few minutes to our customers. With this new warehouse, we will be able to provide the customized services and other

benefits to our prestigious customers including Honda Scooters, Scania Motors, Apex, Volvo India, Mahindra Aerospace, Badve Engg, ADVIK Hi Tech, Gabriel India. The company has its warehouses

across the length and breadth of the country and there are more than 472 fully computerized and Internet integrated branches catering to needs of the clients across 2500 + Delivery Points.

ILFI Welcomes Coastal Shipping Pact with Bangladesh Hailing the visit of the Prime Minister Narendra Modi to Bangladesh as historic and fruitful, Infrastructure Industry and Logistics Federation of India (ILFI) said that it would open a new chapter in the economic cooperation between the two neighbours, which have tremendous potential to complement each other’s economic advancement. Listing the major takeaways of the visit, Dr Mahesh Y Reddy, Director General, ILFI said that the decision to hold annual energy dialogue between the two countries is very timely and appropriate. There is a huge scope for tapping both conventional and

renewable energy not only for meeting the industrial requirements of both countries but exporting surplus to third countries. “ The cooperation between India and Bangladesh is a springboard for shaping a pragmaticLook East Policy for India. Bangladesh with its rich natural resources particularly gas reserves can help industrialization of the Eastern corridor of India, which will be a win-win situation for both countries,” he added. ILFI has also welcomed the Coastal Shipping Pact entered between the two countries and observed that this will facilitate the trade between the two countries by providing bilateral and

June 2015 LOGISTICS TIMES

regional connectivity. India can export goods from Chittagong sea port, which was a major trading center for Indi in the past. Bangladesh will gain considerably through the economic activities that will trigger through these activities. Dr. Reddy observed that bilateral investment and trade between India and Bangladesh can play a pivotal role in the promotion of SAARC. The cooperation between the two countries and the alacrity they have shown in sorting out amicably vexatious issues like Land Boundary Agreement (LBA) and the progress in settling the water sharing issues are commendable and role models for other SAARC countries.

Weekly bonded trucking service between Ahmedabad and Nhava Sheva

DHL Global Forwarding recently announced the introduction of a fixed weekly bonded trucking loop service between Ahmedabad and Nhava Sheva for Less-than-Container Load (LCL) shipments. “The inadequate inland infrastructure was an impediment to the smooth flow of cargo between the sea port at Nhava Sheva and Ahmedabad. With a view to providing smoother logistics connectivity to our

hinterland customers, we have introduced this weekly service which will address the gap in infrastructure,” said Samar Nath, CEO, DHL Global Forwarding India. A dedicated container has been deployed for this service, for which customs clearance is done at the Inland Container Depot (ICD) at Ahmedabad and then moved onwards under customs bond, to Nhava Sheva and vice versa. According to a report released by the Federation of India Export Organization (FIEO) in January 2013, Gujarat has seen a steady growth in its economy with its exports expected to touch USD 400 billion by 2020. Currently Gujarat’s share of India’s total exports is 24%, which is expected to increase to 35% by 2020. Approximately 80% of items manufactured in Gujarat are exported. “Keeping customers at the heart of everything that we do, we

are committed to simplifying logistics solutions for them and will endeavor to continuously improve and innovate,” said Sandeep Nair, Senior Director Ocean Freight India, DHL Global Forwarding. DHL Global Forwarding offers unrivalled coverage in India with over 48 weekly port pairs from all the main ports and ICDs in India to all major ports of the world. With offices in every significant port and industrial region of the world, DHL Global Forwarding has the ability to meet global LCL requirements effectively. Over 97% of the company’s LCL volumes are carried in-house. Working with reputed carriers, the company ensures that its customers receive fast, reliable and cost efficient service for their shipments. It is one of the few forwarders that have the capability to handle Hazardous Cargo in their LCL containers.

SKF India inaugurates Solution Factory in Jamshedpur SKF India announced the inauguration of SKF Solution Factory in eastern region, in Jamshedpur, Jharkhand. This is SKF’s third Solution Factory in India, after the main facility in west, in Pune and the satellite unit in north, in Manesar. The Jamshedpur facility will serve as another satellite unit and focus on large sized bearing remanufacturing analysis process, manufacturing of customized machined seals for hydraulic cylinders, basic hydraulic cylinder repair and maintenance related training solutions from SKF. This factory will cater to the customers, primarily focusing on the metals and mining industry in the Eastern part of India with competencies across SKF’s technology platforms and specific asset management and maintenance services. Commenting on the inauguration, Shishir Joshipura, Managing Director, SKF

India Ltd said, “SKF Solution Factory is a unique global proposition through which we deliver our customized services combining SKF’s knowledge, experience and technology.We see services as one of the key drivers of growth,complementing our unmatched product range. The Jamshedpur SKF Solution Factory will play a pivotal rolein bringing integrated solutions at customer’s doorstep by providing asset management solutions, resulting in higher speed of service deploymentfor our customers in the eastern region. Lokesh Saxena, BusinessHead -OEMBusiness &Services, Industrial Markets, SKF India added, “The prime objective of every SKF Solution Factory is to bring SKF knowledge closer to our customers. SKF Solution Factory combines SKF’s technology, global and local knowledge and experience across

June 2015 LOGISTICS TIMES

geographies and will act as a catalyst to long term asset efficiency and reliability. Over the years, we have seen a rising demand for our maintenance solutions and we are confident that the new Jamshedpur facility will enable us to deliver SKF knowledge to our customers in the eastern region.” SKF Solution Factory is a unique proposition from SKF where people and technology come together to create optimized asset performance across industries. The idea is to expand the scope of our services business and deliver solutions to reduce customers’ total cost of ownership. SKF India set up the first SKF Solution Factory in 2009 in Pune and gradually scaled up operations to provide a number of services to customers. Pune remains the central Solution Factory as it will support the local unit with central services.

NEWS BRIEFS

AISATS extends ISAGO registration to Bengaluru and Thiruvananthapuram

Air India SATS Airport Services (AISATS), India’s premier airport services

company, has been honoured with the IATA Safety Audit for Ground Operations (ISAGO) registration to recognize their commitment towards adhering to safety standards at Kempegowda International Airport (BLR) and Trivandrum International Airport (TRV). AISATS becomes the first ground service provider in Trivandrum to be ISAGO registered. This registration is an extension to the ISAGO registration obtained earlier this year at the Rajiv Gandhi International Airport, Hyderabad (HYD) and their Headquarters in Mumbai. ISAGO registration recognises ground service providers who meets IATA’s industry-proven quality audit principles and is structured to ensure a standardized audit with consistent results across ground handlers. The ISAGO process ensures safer ground operations, fewer accidents and injuries, uniform audit processes, and effectively improves quality standards and enhances the understanding of high

risk areas within ground operations. The key disciplines considered by IATA while certifying AISATS are, Organization and Management (ORM), Load Control (LOD), Passenger and Baggage Handling (PAB), Aircraft Handling and Loading (HDL), Aircraft Ground Movement (AGM), and Cargo and Mail Handling (CGM). Speaking on this occasion Willy Ko, CEO, AISATS said, “At AISATS, safety and security is one of our core values and is paramount in our daily operations. While we are always working hard to maintain our world-class service standards, we also firmly believe in ensuring that the yardstick for safety is maintained at its apex and the ISAGO registration reiterates our commitment in that direction. In early 2015, we achieved this certification for adhering to safety standards at Hyderabad and Mumbai and have now accomplished it for our business units at both Bengaluru and Thiruvananthapuram.”

New FPS Advisory Board Chairman

Famous Pacific Shipping Group (FPS) – the independent network of forwarders and consolidators – has appointed Sam Aparo as the new Chairman of its Advisory Board. He replaces FPS Group founder Benny Ling, who has

taken early retirement on health grounds. The FPS Advisory Board now comprises Aparo (joint Managing Director of FPS Sydney and Melbourne) as Chairman, with Treasurer Iskandar Zulkarnain (CEO of FPS Indonesia), and Membership Director Kettivit Sittisoontornwong (CEO of FPS Thailand and Leo Logistics). Says Aparo: “I am delighted to take on this important role, although I would have wished for it under different circumstances. Benny Ling has put huge enthusiasm and commitment into FPS Group since its formation in 1999, and much of what

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we know as FPS Group today is down to his personal efforts. On behalf of all FPS Group members, I thank him for all he has done, and wish him a speedy and full recovery.” FPS Group focus will now centre on network expansion, particularly in the Americas and Asia. Continues Aparo: “There are significant challenges ahead for independent forwarders, and the economies of scale and sharing of costs that derive from forwarding networks are taking on a much greater appeal.” He concludes: “The FPS Group Advisory Board will work hard to grow the organization, exploiting its strong member base and its excellent reputation as the springboard for further development. The future is exciting.”

Kate Vitasek

10 things that can disrupt your outsourcing relationship

Outsource relationships should not be a source of angst and frustration. When thinking about logistics outsourcing do these questions occur: Is this all there is? or, something is missing, but what is it? It’s entirely possible that the business relationship that began with such promise—perhaps not even all that long ago—is ill, maybe even about to fail. But here’s the rub: how can you identify what’s wrong before it is too late? Fortunately, researchers at the University of Tennessee wanted to find a better way to develop outsourcing deals. Their research and fieldwork studied some of the most successful outsourcing agreements and found that highly successful agreements operate differently: most importantly, these successful arrangements moved

away from traditional transactionbased mindsets based almost exclusively on lowest price and cheap labor. The research findings were formulated into a new business approach called Vested, an outcome-based business model that’s based on collaboration, innovation and creating and sharing value to create partnerships in which the parties are committed to succeeding together for the longterm win-win. While we were at it we identified 10 common and often perverse ailments that can disrupt derail or even destroy the best-intentioned outsourcing or business relationship. These ailments are described in Vested Outsourcing: Five Rules That Will Transform Outsourcing, now in its second edition.

June 2015 LOGISTICS TIMES

PERSPECTIVE

handcuff the provider with a detailed and prescriptive Statement of Work. Ailment 3 Activity Trap Many companies that suffer from the Outsourcing Paradox often also suffer from this related malady. Traditionally, companies that purchase outsourced

Ailment 1 Penny Wise and Pound Foolish One the easiest ailment to identify: It crops up when a company outsources based purely on costs. Many procurement professionals still labor in the Dark Ages in this regard. Too many companies profess to have an outsource partnership but, behind the scenes, they focus solely on beating up their service providers to get the lowest price. Organizations with this ailment give outsourcing a bad name— and should not be outsourcing in the first place. The myopic focus might pay off in the short term, but time and time again it is proved that it does not pay over the long haul. When cost and the lowest price is the only incentive to do a deal there’s probably trouble ahead.

any input from the service provider it has hired to actually the implement the perfect system. Thus, this perfect system is often the first reason why a company will fail in its outsourcing effort. That is because— hello!—it is the company’s perfect system, not one designed cooperatively by the company and service provider. If you want the service provider to bring its expertise and best practices to the table, which should be why you are outsourcing in the first place, then resist the urge to

Ailment 2 The Outsourcing Paradox This happens when a company hires a service provider as the “expert” and then proceeds to tell the provider with excruciating and often annoying precision exactly how to do the work. The company develops a “perfect” set of tasks, frequencies, and measures—a perfect system—but paradoxically fails to get

June 2015 LOGISTICS TIMES

services use a transaction-based model. Under that model, the service provider is paid for every transaction—whether it is needed or not. Businesses are in the business to make money; service providers are no different. The more transactions performed, the more money they make. There is no incentive for the service provider to reduce the number of non–value-added transactions, because it results in lower revenue. The Activity Trap can manifest itself in a variety of transaction-based outsource arrangements. When the contract structure is cost reimbursement, for example, the outsource provider has no incentive to reduce costs because profit is typically a percentage of direct costs. Even if the outsource provider’s profit is a fixed amount, the typical company will be penalized for investing in process efficiencies to drive costs down. In a nutshell, the more inefficient the entire support process, the more money the service provider can make. This is perversity personified.

PERSPECTIVE

to sell the next deal, leaving the “C” team behind.

Ailment 4 The Junkyard Dog Factor When the decision to outsource is made, it usually means jobs will be lost as the work and jobs transition to the outsource provider. Employees will often hunker down and stake territorial claims to certain processes that absolutely “must” stay in house. They become growling, turf-protecting junkyard dogs. Over time, this ailment affects the service provider as well. Under a transaction-based model, the service provider is rewarded for work associated with the volume of the transactions. Unless otherwise compensated, the last thing a service provider wants to do is develop process efficiencies that eliminate its own work. This ailment, if allowed to continue, inevitably will derail the deal. Ailment 5 The Honeymoon Effect At the beginning of any relationship the parties go through a honeymoon stage. Gartner, Inc. studied the honeymoon effect and found that overall attitudes toward an outsourcing contract tend to be positive at the outset, but satisfaction levels drop over time. Service providers often jump through hoops as they ramp up and begin to collect revenue for their new client. Companies discover that the “A” team that sold the deal has moved on

Ailment 6 Sandbagging To prevent the Honeymoon Effect, some companies have adopted approaches to encourage outsource providers to perform better over time by establishing bonus payments for them to achieve certain levels of performance. This can work, but frequently it creates perverse incentives for the service provider: it achieves just the amount of improvement needed to get the incentive. A case in point is the Ukrainian Sergey Bubka, a world-class pole-vaulter earning $50,000 every time he set a new world record. From 1983 to 1998 he set world records 35 times…but never by more than one centimeter! Ailment 7 The Zero-Sum Game This is a very common ailment— companies play this game when they believe, mistakenly, that if something is good for the service provider, then it is automatically bad for them. Of course, service providers also play this game. Players on each side do not understand that the sum of the parts can actually be better when they are combined effectively. It’s called trust and collaboration: when individuals or organizations work together to solve a problem, the results are always better than if they had worked separately or worked at cross-purposes. Ailment 8 Driving Blind Disease This devilish ailment affects many outsourcing agreements: the lack of a formal governance process to monitor relationship performance. When we started working with companies more than 20 years ago, most outsourcing arrangements fell into this trap. They

would develop arrangements but not outline how they would measure the success. Typically the companies would focus on tracking costs but not measure important aspects of performance. As a result, outsourcing agreements often failed because of an unclear definition of success and a lack of proper alignment. Ailment 9 Measurement Minutiae Too much of a good thing can be bad for you; this applies to binging on Halloween candy or to exhaustive measurement of logistics service providers. The hallmark of this ailment is trying to measure everything. Actually the minutia that some organizations create is quite remarkable. We have found spreadsheets with 50 to 100 metrics on them. The thing is, if you try to measure everything you essentially measure nothing: you have a blur of meaningless numbers and little context or insight. Our research has shown that successful relationships reduce the number of metrics to between 5-10 key performance indicators, allowing them to focus on what matters versus everything that moves. Ailment 10 The Power of Not Doing This is perhaps the saddest of all the ailments. Many companies fall into the trap of investing heavily in fancy software and scorecards but then fail to follow through and actually use them use them to manage the business. We have all heard the old adage “You can’t manage what you don’t measure,” but if the metrics compiled are not used to make adjustments and improvements, then don’t expect results. Do these ailments set off some strident and uncomfortable alarms? The presence of even one might endanger the future of your deal. But the good news is that diagnosing the illness is the first step to curing it!

* Kate Vitasek is a faculty member at the University of Tennessee’s College of Business Administration and an internationally recognized innovator in the practice of supply chain management. Her insights have been widely published in more than 400 articles and five books, including Vested Outsourcing: Five Rules That Will Transform Outsourcing, from which this article was adapted. Vitasek is also the author of The Vested Outsourcing Manual, Getting to We and Vested: How P&G, McDonald’s and Microsoft are Redefining Winning in Business Relationships.

June 2015 LOGISTICS TIMES

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COVER FEATURE WAREHOUSING SPECIAL

‘Ware’ do you house your grains? If you are a smart farmer like Prakash or Swamy in today’s times, then you will definitely answer the question with “at the warehouse”. Karnataka State Warehousing Corporation or KSWC is the friendly neighbourhood stockist – ‘friendly’ to both the farmers and the buyers, ‘neighbourly’ owing to their 134 warehouses across different talukas and districts of Karnataka, and ‘stockist’ for obvious reasons! A visit to a few warehouses run by KSWC in Mysore, Bandipalya and Mandya revealed that the skepticism that once existed among farmers for government run warehouses has not only changed but is now welcomed with positivity. Sarada Vishnubhatla visits few of these old and new warehouses in and around Bengaluru, Karnataka and files this report. 20

June 2015 LOGISTICS TIMES

Thirty-six year old Swamy – a farmer from Mandya district of Karnataka – wipes the sweat on his brow on a hot day as he proceeds to oversee the stocking of his produce at the KSWC warehouse. He has brought in a tractor load of paddy from his village Kudragundi in Maddur taluk. When we seek him out he smilingly shares with us his past and current experience as a hardworking young farmer, “Earlier,

middlemen would come to us before harvest and offer us loans with high interest rates at the rate of Rs. 10. And then post-harvest, they would take our stock after deducting the loan and the piled up interest rates. They used to do the transaction at the market. But now I stock my paddy here in the warehouse. They keep it safe, and there are no rats or insects.”

His friend and fellow farmer, Prakash, who is also 36 years old, remembers with distaste, “After the harvest we never used to have the money for seeds and fertilizers for the next crop. Many farmers have committed suicide in the past because of the harassment of the middlemen.” Both Prakash and Swamy grow paddy and sugarcane mainly, with small quantities of pulses like toor dal or Pigeon Pea, similar to most others in the state. The warehouses of KSWC, short for Karnataka State Warehousing Corporation, are now being seen as a lifeline by farmers. Storing one’s produce in the space offered by middlemen was the norm traditionally but was devoid of any guarantee of money or safety of the grain from pests and rodents. Prakash confides, “Nowadays we are coming to the warehouse to keep our stocks here. We are getting sufficient amount from the bank as loans, so it has improved our finances also.” K Eswariah, the Chief General Manager of Karnataka State Warehousing Corporation in Bengaluru, reminisces, “In 1984, when I joined as the Warehouse Manager, the problem was of empty warehouses because farmers were not aware of it. We used to go village to village publicizing that such a facility is available, so bring your produce and store it with us. But now we have a problem of not being able to provide more and more storage space.” Quite a reversal of situation!

Spatial dimension KSWC currently offers 17 lakh metric tonnes of storage capacity to farmers, Food Corporation of India or FCI, or National Bank for Agriculture and Rural Development or NABARD and anyone who wishes to store food grains, spices, sugar, cooking oil, and fertilizers with them. In roughly a year’s time, the 134 warehouses will boast of additional 16 lakh metric tonnes of storage to accommodate more and more farmers’ produce. Eswaraiah shares the good news, “We are increasing the capacity by 16 lakh metric tonnes with the help of grants

June 2015 LOGISTICS TIMES

COVER FEATURE WAREHOUSING SPECIAL

from Rashtriya Krishi Vikas Yojana, for example. We will be expanding our capacity wherever the demand is more which is mostly in the paddy belt and where toor dal is grown in huge quantities. We are looking at areas like Yadgiri, Gulbarga, Raichur, Bidar, Mandya, Shimoga, Davanagere, and Shahpur. We have put out the tenders for constructing the infrastructure in our existing warehouses and the process of expansion should be finished in roughly a year’s time.” On any good day, KSWC’s warehouses across the state have more than 80 per cent occupancy. In the peak season, they look for additional capacity to store more produce.

Middlemen menace Traditionally, middlemen have had a strangle-hold on farmers forcing them into distress sales. With the state government pitching in with warehouses, services like REMS or Rashtriya E-Marketing Services and direct transfer of payment to the farmers through RTGS into their bank accounts, the middlemen are all but eliminated. The Managing Director of KSWC, M B Rajesh Gowda tells us, “The Karnataka state government has declared these warehouses as sub-markets. Till now APMC or the Agricultural Produce Marketing Committee was the only market but now trading can happen in the warehouse yards.” Eswaraiah adds, “This helps the farmer save on the transportation and handling of the produce. KSWC provides space, and online facility also to sell. A man in Arsikarai can easily sell his stocks online to someone in Delhi.” Gowda says further, “The quality and quantity of those stocks kept by that farmer will be uploaded on an online platform, enabling someone sitting in Gujarat to bid for this stock kept here. To that extent middlemen will be eliminated.”

Wanted: Huge Capacity and Bridge Finance You are always looking for space. How do you explain? If there are 10 farmers waiting in the queue to deposit their stock but only 4 or 5 got the space and the rest of them did not, then they may go into distress sale. If you look at the overall average occupancy at KSWC, then it will be 85 per cent but the requirement of space goes up in the peak season because that is when the farmer is waiting. Even NABARD (National Bank for Agriculture and Rural Development) has made a study in Karnataka that the warehousing gap is about 25 lakh metric tonne, so they Rajasekhar Gowda need to finance and bridge the gap… but that is a big story Managing Director Karnataka State Warehousing Corpn in itself to create capacity. What modernization methods are you using in your warehouses for stocking, transportation, maintenance, aeration and all? Our godowns are scientifically built. If you see our godowns, there will be many openings for aeration. At any given point in time, there will umpteen number of trucks loading and unloading at the same time in the same godown. The height of the godown, the plinth height, ventilators – all are provided for scientific storage. Apart from that, the best practices can be brought in with integration of technology where the state warehousing corporations have not yet come of age as compared to say, Maharashtra which has done really well. At KSWC, we are almost 80 per cent through with our IT integration where every warehouse will have a system in place, software for warehouse management and ERP for the head office. We are also moving towards a unified market platform. This is the challenge. What kind of help do you look for from the state and the central governments? Basically when NABARD looks at financing us they ask for the state government guarantee. In Karnataka, the state government is liberal, so they give guarantee for us to expand capacity. In all the state warehousing corporations, the CWC or the Central Warehousing Corporation is a 50 per cent partner. When we started, our equity was about Rs. 4 crore each. Now it is high time that the state government would also come in making our equity Rs. 100 crore and may be the central government also would bring in Rs. 100 crore so that our paid up capital becomes Rs. 200 crore. According to the Warehousing Act formulated in 1961, we cannot take loans more than 15-20 times so that is why we go for government guarantee. So it is high time that the corporations may be treated better. How would you explain the warehousing corporation to be farmer friendly? It comes with food security which has two dimensions – one to keep the buffer stock and distribute it to the PDS (Public Distribution System), and the other is that the farmer has to be continuously incentivized to grow food grains. With the rising input cost, the Minimum Selling Price (MSP) will rise too. We are looking at the warehousing corporations as game changers in getting remunerative prices for the farmer without government’s intervention, that is, through warehouses becoming technology driven, secular and transparent platforms for discovering of price throughout the country.

June 2015 LOGISTICS TIMES

Privatization – the solution? While plans are afoot for increasing the capacity, KSWC is plagued with staff attrition. No surprise there because the average age of its employees is 50 years and hence gradually retiring. KSWC faces either recruiting more staff or inviting private players to take care of some of its activities – like maintenance of its stocks and warehouses or fumigation, for instance. Though worried, Eswaraiah knows there is a way out, “With more people retiring in the last few months, we have drastic decrease in the staff. Ideally we should have a minimum of 1000 people working here. But we are hardly 300 people. On the other hand the capacity is increasing. So wherever we can, we would like to hire private agencies for maintenance services. Only 18 technical staff has been appointed in the last few months.” A small number in the face of increasing constraints, indeed! Despite this, KSWC is one of the foremost warehouse corporations run by any state government in India, along with Madhya Pradesh and Maharashtra, and not necessarily in that order. Gowda wishes to convert his dream of upgrading his warehouses across the state with IT enabled programs, conveyor belts for bringing in the stock and high professional attitude amongst his workers to come true. In short, he would like to see his warehouses to wear a state-ofthe-art look with manicured gardens and

mechanized production, ultimately. He says, “A conveyor system wherein right from the railway rake coming from say Food Corporation of India comes to the platform of the warehouse and from where a horizontal conveyor belt – on which the bags can be just kept – can bring them up to the stacks. From there a 45 degree angle conveyor will automatically move these bags up the stacks. It helps because after a certain height the labour cannot lift the bags, so if we have this machinery in place then we can increase the capacity of the warehouse by another 25 per cent without any extra cost. IT integration is another area, and the third area may be having CCTVs and other things where people can see. Auditing and keeping an eye on the warehouse managers will become easier this way.” A tender has already been floated for supply and installation of the CCTVs across the state. But Eswaraiah feels all this requires time and space, “To install conveyor belts and all, you need to allocate space within the existing warehouse or godown.” This will prove difficult as the existing space with the KSWC is already drastically falling short in accommodating the farmers and their produce.

Small changes can go a long way Internationally, the concept of handling, maintaining and operating warehouses

June 2015 LOGISTICS TIMES

is a different ballgame. In India, it is still in its infancy. Gowda, who visited the Chicago conference a couple of years ago organized by the International Federation of Warehousing and Logistics Associations (IFWLA), witnessed the level of evolution and seems raring to implement some changes in Karnataka. He shares, “Abroad, there is quite a lot of value addition. They will do the packaging, assigning, grading everything… if you want say for example toor dal to be labeled under your name, they will do it and they will barcode it also. But here warehousing is basically a lot of commodities coming in and going out. But it can change. Suppose a Total Mall or a Reliance Fresh wishes for pulses to be labeled and sold in their name, they can then tell us and automatically the dal will be cleaned, packed, assigned and graded and then it can directly be sent to the dealer/retailer.” When and if it happens, KSWC plans to involve private vendors. Involving private vendors is not new to KSWC. It already utilizes them for services like offering transport to the farmers, FCI or NABARD by floating tenders and choosing the best candidate thereby. Gowda adds, “In the USA, warehousing basically works as a supply chain, like some electronic item or music instrument is coming from one part of the world, its different parts, including the label, come from many different places. At their warehouse, they assemble the whole thing, then pack it and send it to wherever the customer wants.” In his vision, Gowda sees KSWC as more than a warehouse but also knows the downside of it, “In our country where agrarian economy needs to be pampered to an extent, we can at least bring up the quality of the farmer’s produce, which may or may not be of the FAQ or the Fair Average Quality level or up to the consumption level. We can then go one step further and grade and pack it. It should not be a big issue.” It has yet to see the light of the day.

‘Receipted’ guarantee To its credit, KSWC has already implemented the WDRA Act which was formulated in 2007. Under

COVER FEATURE WAREHOUSING SPECIAL

Gowda elaborates, “NABARD is ready to refinance all those banks at a concessional rate of interest which will be around 7.5-8 per cent. When there is a glut in the market the prices generally fall, the farmer can keep his stocks for some time in anticipation of the prices to go up. WDRA or Warehousing Development and Regulatory Authority, the state warehousing corporations can issue receipts to the farmers who stock their produce with them which can be utilized by the farmers in getting loans from national banks so that they can work towards their preparation for the next crop. Eswariah tells us, “Under the Warehousing Development and Regulatory Authority, a warehouseman issues a negotiable receipt which is like a Demand Draft or cash. Previously everything was haphazard. But now the process is standardized. There is no monopoly here. Secondly, loans

are easily available to the farmers. And bankers should not feel hesitant to give loans to them.” Gowda elaborates, “NABARD is ready to refinance all those banks at a concessional rate of interest which will be around 7.5-8 per cent. When there is a glut in the market the prices generally fall, the farmer can keep his stocks for some time in anticipation of the prices to go up. To that extent he can take a pledge loan of around 80 per cent at 7.5 or 8 per cent so NABARD has kept that money for refinancing. So these banks, like CANARA BANK which is taking the lead in these issues, will finance the farmers who have

June 2015 LOGISTICS TIMES

kept stocks may be for 4, 6 or 7 months whenever they want to sell it, so till then they would have got that 80 per cent of the money and for other activity they can use that money. So they can take a pledge loan at a very concessional rate of interest. That is where banks will be there, NABARD will be there, then this warehouse receipt will be there.” For this to run smooth, accreditation of the godowns is crucial. Currently, KSWC has applied for total accreditation from WDRA for roughly 80000 metric tonne capacity. Soon, they hope to apply for an additional capacity across the state. Gowda explains, “Under WDRA , these godowns and warehouses should be accredited to ensure the security of the stocks with respect to quality and quantity. Accreditation has a check list. There is an agency called NAPCONS which inspects the warehouses to crosscheck if all the criteria like the construction of compound wall, posting of security, all instruments which are supposed to be are there, besides things like the drain, the plinth and the height of the godown, particularly in areas where rainfall is there, where dampness will be avoided- are all fulfilled or not.” With so much going in its favour, solely by the sheer dynamism and positivity, is it not high time for KSWC to consider offering cold storage facilities as well? Eswariah disagrees, “We face quite a lot of electricity problems so we cannot store perishables requiring cold storage besides the expenses will be huge to maintain, especially if the goods are meant to be kept at the godown for a short term.” There are many more milestones that KSWC is yet to touch… be it building silos to store humungous quantities of stock – which will save the government the efforts to look for additional space eternally to a large extent– or start offering cold storage services which can actually generate revenue, it is high time that the government starts treating the warehousing corporation as a Special Purpose Vehicle, in the words of Gowda, because the whole burden of the agrarian economy cannot be borne alone by the warehousing corporation.

GST:

THE MAGIC POTION?

Even a decade ago, this word – warehouse – would have found no takers among the biggest of big India Inc honchos. The currency of that era was: godown. Because even the much fancied supply chain & logistics was unheard outside the portals of MNCs operating in India. They were privy to these esoteric terminologies thanks to their foreign pedigree. Today, logistics is in thing. Supply Chain too. So also, as a corollary, warehousing. These are no dusty, dungeon areas where components/inventories are ‘stored’and supplied as and when needed. They are spick and span. They compete with high June 2015 LOGISTICS TIMES

COVER FEATURE WAREHOUSING SPECIAL

end dh hospitality ospittalitty joints joints. s. After much A fter m uch political polittical muck muck racking, ra acking, the Goods & Service Taxx or or GST G ST appears appears to to be be round round the the e corner. corner. Several Several forests fo orestts might mig ght have been b een decimated decim mated iff one one has has to o take take account accoun nt for for reams reams and an nd reams reamss written about on impact off G GST out on nation w ritten a bout o n tthe he llikely ikely im mpact o ST rroll oll ou ut o n the n ation ass a whole. a whole e. Why? Why? Because Because we we are are talking talking about abou ut tangible tang gib ble items ittemss has be made materials and pushed out tthat hat h as tto ob em ade ffrom rom rraw aw m aterials a nd p ushed o ut iinto nto tthe he market market for for sale. sale. So So there there is is movement: movement: both both inbound in nbound and an nd outbound. o utbound. GST, G ST, everyone everyo one would would like like to to call call it it as as a game game changer. changer. Maybe. Maybe. But defi mind-numbing all B ut iitt iiss d efinitely nitely a m ind-numbing ffor or a ll sstakeholders. takeholders. IIff all all goes goes well well at at the the political political level level – now now the the GST GST Bill Bill has has been been rrefered efered tto o a Select Select Committee Committee of of Parliament Parliament – this this should should become become with effect April 2016. Hardly 10 months away. a rreality eality w ith e ffect ffrom rom A pril 2 016. H ardly 1 0m onths a way. But excitement palpable. Ass iif,f, tthe baby has been delivered B ut tthe he e xcitement iiss p alpable. A he b aby h as b een d elivered already. Mostly, mood upbeat because off th the a lready. M ostly, tthe he m ood iiss u pbeat b ecause o he anticipated d movement off g goods which turn will bring moolah sspeedy peedy m ovement o oods w hich iin n tu urn nw ill b ring iin nm oolah ffor or all a ll stakeholders. stakeholders. More More goods goods produced produced and and sold sold means means higher higher GDP. Good economy. And… good all. G DP. G ood ffor or tthe he e conomy. A nd… ttherefore, herefore, g ood ffor or a lll. Mind M ind you, you, warehousing warehousing is is a tiny tiny element element of of the the entire entire supply supply Nonetheless, wheel. cchain. hain. N onetheless, iitt iiss vvital. ital. LLike ike a ccog og in tthe he w heel. LOGISTICS LO OGISTICS TTIMES IMES iinvited nvited tthe he iindustry ndustry vveterans, etera ans, p practitioners ractittioners a and nd academicians who burn proverbial midnight oil, aca ademiccianss w ho o b urn tthe he p roverbial m idnight o il, tto o sshare hare their on eve off tthe mega warehousing thei ir tthoughts houghts o n tthe he e ve o he fforthcoming orthcomin ng m ega w arehousing show. show w. Relish Here, it is. TTaste astte iit. t. R elish iit. t. 26

June 2015 LOGISTICS TIMES

Business pattern, the Location decider

focused on central locations. Companies he long awaited GST is will have to adopt more advanced IT expected to be implemented solutions and larger, more advanced by fiscal 2016-17 and is aimed infrastructures. Companies that quickly at reducing multiple taxes. adapt to the changing scenario will not Inter-state sales transactions will become only differentiate themselves, but also tax neutral and the whole country will successfully capture this major growth become one single common market opportunity. without any state borders. It will be possible to operate large scale Logistics companies will, therefore, shared facilities with multiple users which see a major change in transportation of will set the platform for consolidation in goods and location of warehouses. In the the post GST scenario. GST will make past, warehouses were set up for avoiding large regional warehouses economically state taxes at the cost of operational viable as opposed to the multiple small efficiencies. ones set up to deal with the current tax Current supply chain structures in Vikas Anand structure; DHL Supply Chain is well India are engineered to harness fiscal MD, DHL Supply Chain India ahead of the curve having begun its benefits arising from difference in tax structures across regions. A single unified tax on both “goods” and “services” with Under the proposed taxation scenario, by the objective of eliminating tax cascades, will bring about a transition from the using Network Strategy, every distributionexisting origin-based to a destination- intensive company has an opportunity to rebased taxation regime. Under the proposed taxation scenario, by using look at their supply chain structure and gear Network Strategy, every distributionintensive company has an opportunity up for the proposed tax reforms, to align their to re-look at their supply chain structure supply chain distribution network to customer and gear up for the proposed tax reforms, to align their supply chain distribution markets moving away from tax issues. network to customer markets moving outlay in Multi Client Sites (MCS) sites three years ago, when away from tax issues. Simplifying the distribution network and merging smaller it announced an investment of Euro 100 million in 2012, to warehouses to regional centres will result in economies of scale strengthen logistics infrastructure. The company has already invested in large Multi-Client being generated. Warehouse locations will no longer need to be fixed depending upon Central Sales Tax constraints but will be Sites (MCS) in five metros, and is in the process of completing decided based on demand and supply patterns, centre of gravity, construction in three more cities. These offer a wide range of long term logistical and real estate considerations. Large shared additional services that improve the performance of a customer’s Distribution Centers offer not only strategic, operational and supply chain. From sub-assembly, co-packing, customization, financial benefits, but allow for better cost control, forecasting, postponement, kitting, sequencing to pre-retail activities across inventory rationalization and synergies for consolidation in all industry sectors, DHL MCS solutions will help businesses lower costs, reduce inventories, and suitably match supply with transportation. With GST soon to be introduced in India, the 3PL market demand. Additionally, in this changing scenario of warehousing and is poised to re-invent itself. The development of supply chains is currently driven more by tax savings than by logistics supply chain post-GST, companies will require well trained, efficiency, driving up transport and warehousing costs. With the professional and skilled employees who will be in a position to abolition of central sales tax (CST), trade boundaries between fulfill the growing demand for higher levels of operational and states will not exist and companies can consolidate supply quality compliance. With supply chains maturing in India, the introduction of chains. This could really see hub-and-spoke strategies take off,

June 2015 LOGISTICS TIMES

COVER FEATURE WAREHOUSING SPECIAL

Inventory cost will come down

very large companies operating at huge he efficiency of a company’s volumes, it is possible that the number of supply chain is determined by warehouses don’t come down drastically a number of factors as it may escalate lead times to customer including transportation and demands. However, irrespective of the size warehousing costs, taxes, lead times to and volume of business, most consumer customer demands, speed to market; and facing sectors like retail, hi-tech, consumer agility in reaching and servicing various durables; and some business to business geographies. companies will witness the impact of GST The introduction of GST is expected on how they manage their supply chain. to impact these factors through reduction In addition to strategically planning in number stocking locations and faster warehouse locations, GST will necessitate inter-state transit times which will bring that LSPs build robust transportation down the inventory holding levels. networks, with a keen focus on service level However, one needs to bear in mind that agreements. The increase in transportation the intensity of this impact will vary for Milind Shahane distances will drive the surge in demand each sector and each company within MD, DIESL for organized, technologically mature that sector depending on their levels of operations, volumes, warehousing locations and transport network. Every company would therefore As IT dependency will increase post-GST to need to undertake in-depth studies to formulate unique business strategies in manage visibility of stock and longer hauls, preparation of GST and re-examine their employees at hubs will have to upgrade their supply chain networks – planning is extremely important and will have long IT skills and systems knowledge to keep pace. term implications as once the network In addition to this, with planned warehouses, plan is executed it can’t be overhauled at and facilities in logistics parks, reliance on a short notice . At present, warehousing and transport mechanization and automation will intensify. hubs are often found at different locations which pushes up logistics cost and that is This would also require a special set of skills inadvertently passed on to the customer – this could change post-GST. Mid- which warehouse personnel will have to be sized companies are likely to eliminate trained in. or reduce their warehouses in high-cost locations or maybe migrate to cross docking from full-fledged logistics partners who will be able to provide accurate inventory facilities. This will be especially so if these facilities are in close tracking and reporting systems. On the manufacturing side, proximity to locations in other states which have the benefit of it will be prudent to examine packaging standards in terms of low rentals, or access to better infrastructure and talent and fewer robustness and customization for carrying maximum volumes. This will minimize damages during long hauls which add to labour problems. Costs will be optimized as warehouse facilities will be overall logistics costs. Larger warehouses pushing more volumes and handling consolidated leading to decrease in inventory cost, and they will be planned closer to market in the absence of constraints of tax greater quantities of inventory will necessitate that the facility systems – to be able to react faster to demand despite being less staff is trained and better skilled in planning and execution, to than truck load quantities. At present companies are forced to meet these demands. Warehouse personnel will be expected set up warehouse in some locations just to save on tax and avoid to handle wider scale of operations and manage inflow from multiple supplier locations. hassles of crossing state borders. As IT dependency will increase post-GST to manage visibility While servicing many locations from one single facility may increase the transportation cost for a few organizations, of stock and longer hauls, employees at hubs will have to upgrade overall the result of this optimization will be positive. In case of their IT skills and systems knowledge to keep pace. In addition

June 2015 LOGISTICS TIMES

to this, with planned warehouses, and facilities in logistics parks, reliance on mechanization and automation will intensify. This would also require a special set of skills which warehouse personnel will have to be trained in. DIESL has been steadily preparing for the introduction of GST for some years now and is well poised to leverage the benefits of this policy when it is rolled out in its entirety. We have positioned our hubs in all major locations – in Tier 1 and Tier 2 cities – which are already important centers for production and consumption, and will feed the nearby markets. Many of our large warehouses are mechanized and located in logistics parks and this capacity can be increased based on market

demand. DIESL invests in BTS (build-to-suit) warehouses if we don’t find facilities that meet our quality and compliance standards – this has enabled us to develop well planned spaces that allow greater mechanization and more efficient operations. DIESL has also planned more wide spread transportation networks through in-city and secondary distribution models to provide connectivity. The in-city model is planned in every branch location of DIESL in the next two years. With an eye on the future, we have also invested in state of the art technology like software for Warehouse Management, Transport Management including Track and Trace, SAP, Order Management, Document Management, and Customer Complaint Management.

Exciting times ahead

to plan for revamping. Hence, best way mplementation of GST will have would be to look at external experts to significant impact and transform the provide the guidance. What they may also business carried out in comparison want to look at is outsource to LSP who with the ways of the current tax have planned for post-GST regime. It is regime. With a single rate being applied quite obvious that LSPs, who can adapt to all goods and services there will be a the changes due to GST will be at ahead significant redistribution of taxes across of others. all categories resulting in reduction in Post-GST the regime should taxes on manufactured goods and hence provide exciting times for logistics - and impacting the pricing of the product. particularly so for 3PL/Warehousing The integration of tax on Goods and industries. GST is an evolution of the Services through GST would provide the current tax regime, transforming the additional benefit of providing credit for complex and cascading structure into a service tax paid by manufacturers. Both unified value added system of taxation. CENVAT & VAT which are in practice Bharat Thakkar Under this, a value added tax would be now, give tax credit to the manufacturer for Former President, ACAAI levied at every point of the supply chain the tax paid for raw materials (hence a tax providing for credit for any / all taxes paid is charged only on the value added by the manufacturer). More often than not, there are various services previously. Keeping in line with the governance structure of the including logistics involved in getting the input material to its country GST would be levied simultaneous by the Centre and State (CGST and SGST respectively). final customers. Service tax is paid on the cost of such services. All essential characteristics in terms of its structure, design GST is the next big step forward in fiscal reform in the Indian context. If GST is implemented in the true spirit of its intent, applicability, amongst others would be common between CGST it will bring in major changes, resulting in rationalizing and and SGST, across all states. GST is expected to replace most of simplification of the tax structure at the Central and State levels the current applicable indirect taxes With the implementation of GST, cost of any services, (even across state borders). With GST coming in, the key advantage will be re-aligning/ including logistics, will be considered a value add, and the merger of the smaller warehouses to most productive and logical manufacturer will get tax credit for the service tax paid. Interlocations - without having a tax burden to think of, which when state transactions will become tax neutral. Under GST interstate sales transactions between two dealers would be cost automated will give excellent cost benefits. With government geared up to unveil the GST regime, it is equivalent compared with stock transfers / branch transfers. hoped that wiser council will prevail and egos set aside. Having According to the proposed model, Centre would levy IGST said that that businesses will require to adopt accordingly and take which would be CGST plus SGST on all interstate transactions a fresh look at their supply chain to cater to existing requirements of taxable goods and services. The inter-state seller will pay IGST and look at the new business areas that this impending legislation on value addition after adjusting available credit of IGST, CGST, is due to bring in. With so much focus on existing operations, it and SGST on his purchases. Similarly the importing dealer will will be almost difficult for the management of these businesses claim credit of IGST while discharging his output tax liability

June 2015 LOGISTICS TIMES

COVER FEATURE WAREHOUSING SPECIAL

in his own state. This will result in inter-state sales transaction becoming tax neutral when compared to intra-state sales. India would become one single common market no longer divided by state borders. Business implication of GST logistics and supply chains will therefore see a major change; sourcing, distribution and warehousing decisions which are currently planned based

Post-GST the regime should provide exciting times for logistics - and particularly so for 3PL/ Warehousing industries.

on state level tax avoidance mechanisms instead of operational efficiencies will be reorganized to leverage efficiencies of scale, location and other factors relevant to the business. Rationalization of Warehouses and Transport network GST would eliminate the existing penalties on inter state sales transactions and facilitate consolidation of vendors and suppliers. This will eliminate the need to have state wise warehouses to avoid CST and the associated paperwork, leading to elimination of one extra, redundant level of warehousing in the supply chain. This will result in a reduction in the number of warehouses bring in improved efficiencies, better control and reduction in inventory due to lesser numbers of stocking points and cases of stock outs. This would allow a firm to take advantage of economies of scale and consolidate warehouses at the same time reduce capital deployed in the business. Logistics providers with larger warehouses can benefit from technological sophistication by deploying state-of-theart planning and warehousing systems which are not feasible in smaller, scattered warehouses. At the same time IT costs of having ERPs deployed at many small warehouses can be eliminated This will provide the way for seamless service levels at low cost in the overall supply chain. A rationalization similar to warehousing can also be done in distribution and transportation routes as tax ceases to become the deciding factor. Since the tax rates across states are envisaged to be uniform,

state boundaries will no longer be the parameter for deciding routes. Businesses will transform trade across borders instead of trade across barriers. With this larger warehouses, transportation requirement will automatically increase, making way for more efficient 40â&#x20AC;&#x2122; and 45 trucks. The optimization and rationalization that these options can bring about in the supply chains on account of GST will provide a competitive advantage to the business through seamless service and quicker turnaround times at lower costs. This will create opportunity for alternate distribution verticals . Logistics companies will be able to explore various distribution , such as setting up mother warehouse and regional distribution hubs and move away from generation old traditional C&F and distributor currently being followed . This will lead to logistics and distribution to evolve more strongly as a competitive advantage. The government has already begun the process of amending the constitution and getting the necessary consensus from all the stake holders. Though the exact details are still sketchy, the structure and deliverables have been clearly laid down for all to see. We expect GST to be implemented in 2106, if personal egos are set aside for the sake of National Development and intra GST will offer a tremendous opportunity to re look and re organize Supply Chain & Distribution strategy, identify requirements to become GST ready. Those who move early are likely to gain an advantage on cost , service levels over competitors and deliver a better value proposition to the customer. Let me now emphasise on some immediate worries. Having said that Introduction of the dual structure of central and state bodies will make the current tax system a bit complicated until things settle down, as the multi-layered system, with both central and state governments having the power to levy taxes will bring many inefficiencies in the system. The double taxation policy also adds cost as the tax paid earlier in the value chain gets re-taxed and firms end up paying tax on the tax paid. The government over the past years has tried to bring about some changes to try and minimize this cascading impact. However this is not to the same extent as the new Goods and Services Tax (GST) intends to do.

June 2015 LOGISTICS TIMES

Pooling challenges

ndia’s biggest indirect tax reform since Independence seems to have KEY CHALLENGES finally arrived by way of “Goods Cross Border Movements: and Service Tax”. First mooted Fundamentally, GST moves away from several years ago and recently tabled in origin based taxation to a destination Parliament, the government has come a based consumption tax. This means long way in their effort to build consensus that all taxation will be based on where on this path breaking change. consumption of a good or a service While it wasn’t easy, there now exists takes place. Also, the taxable supplies a broad framework to ensure that there is under GST will extend to all inter State no potential loss of revenue for the states. movement of goods, including on branch It is now truly believed that introduction or consignment transfers not resulting in a of the Constitution Amendment Bill in sale of goods. This has major implications Parliament seems like the first milestone for supply chains, particularly on classic towards bringing in this long awaited hub and spoke arrangements of centralized Devdip Purukaystha reform. manufacturing and disaggregated President, CHEP India GST is expected to be the game changer for the Indian economy and the extent of its success will depend on its form and in the Consolidation of warehousing will lead details. We all expect that implementation of GST will have significant impact and will change the manner in to utilization of high capability material which business is carried out in comparison with the handling systems. Automation and current tax regime. Logistics and supply chains will therefore mechanization will be the norm and the see a major change; sourcing, distribution and warehousing decisions which are currently industry will witness standardization planned based on state level taxes instead of across the supply chain eco-system. operational efficiencies will be reorganized to leverage efficiencies of scale, location and other factors distribution. The impact of proposed levy of additional tax of 1% relevant to the business. on interstate movement goods will have to be assessed. Consolidation of warehousing will lead to utilization of Clarity on Classification: Pooled equipment’s are largely used high capability material handling systems. Automation and for transportation of goods within the state or interstate in supply mechanization will be the norm and the industry will witness chain. Currently, hiring of such moveable equipment is regarded standardization across the supply chain eco-system. Realizing as goods and is subject to VAT. It is yet to be clear how hiring the potential of standardized supply chains that can add of moveable property / equipment will be treated under GST value to business, CII has recently launched their report on (i.e. as goods or service). Further, concerns are apparent over Racking Handling equipment Trucking and Pallets (RHTP) valuation of equipment’s used for hiring when they are moving standardization. across borders. Pooling of standard equipment such as Pallets and Crates To be GST Ready: GST will pose challenge for companies as will add significant value to the industry. Pooling is a concept to how they might engineer their supply chains so as to be GST that allows shared usage of material and the model is based on efficient. It is probably fair to suggest that the longer the supply the principles of reduce, reuse and recycle. It imparts benefits to chain, the more the tax points in the GST scheme of things users along a supply chain. Pooling solution providers like CHEP and hence increased compliance costs. The challenge and the has arrangements with multiple parties involved in the supply- opportunity is to thus compress supply chains for GST efficiency chain to ensure that the same equipment are made available for while ensuring that the business objectives in and around supply use by the different parties in the supply-chain thereby avoiding chains are also met. For this purpose, a comprehensive GST the need for each party to have their own equipment or storing impact assessment would need to be carried out and based on equipment. Where the concept of pooling will bring innovation the information available around the structure of dual GST, the in supply chain and make it a seamless affair in a cost effective potential issues and areas of impact for a particular company manner, we foresee a few challenges with the implementation of could be identified and a detailed mapping of the ‘as is’ supply GST. chain and the associated current costs would be calculated.

June 2015 LOGISTICS TIMES

COVER FEATURE WAREHOUSING SPECIAL

Supply chain efficiency, the deciding factor

invest in their warehouses by automating ndiaâ&#x20AC;&#x2122;s present warehousing landscape the operations, using higher skilled labour is set up for avoiding state taxes at force. Companies would need to do a the cost of operation efficiencies. re-think of their supply chain strategies Currently, each of Indiaâ&#x20AC;&#x2122;s 29 states with infrastructure developing with taxes goods that move across their borders proximity to manufacturing locations or at different rates. Therefore, freight that consumption markets. moves across the country is taxed multiple On the road transport side, the times. To make matters worse, there are removal of the tax barriers would long delays at inter-state checkpoints mean lesser downtime for vehicles as state authorities review and examine which would mean companies would freight and apply the relevant taxes and need lesser vehicles to move the same other levies amount of freight. It is expected that To give the readers a sense of there would be a dip and in replacement perspective, UBS Securities research has demand for vehicles, at for a period found that there are 650 odd check posts Samir Khatri of 12-18 months after the GST comes in the country and 11 categories of taxes Managing Director, UTi into effect. Today, warehouses are small on just road transportation. Given that 65% of the freight in India moves via road, the impact of a The removal of the tax barriers would mean lesser post GST environment cannot be evaluated for warehouses as downtime for vehicles which would mean companies stand-alone. We also need to would need lesser vehicles to move the same amount evaluate how it would impact the road transportation as of freight. It is expected that there would be a dip and well. Indian truck drivers in replacement demand for vehicles, at for a period of currently clock an average of 12-18 months after the GST comes into effect. Today, 280km per day, much below the world average of 400km warehouses are small and correspondingly smaller per day and far below the inefficient trucks with a carrying capacity of 9-20tons 700km per day that a driver in US clocks. The poor show are used. In future, transporters will move towards the Indian driver has to do less the larger 40 ton plus carrying capacity to service the with bad roads and not-soefficient trucks and more to larger warehouses do with our prevailing archaic laws. Today, an Indian truck driver spends 30%-40% of his time and correspondingly smaller inefficient trucks with a carrying capacity of 9-20tons are used. In future, transporters will move negotiating check-posts and toll plazas. In a post-GST environment, the need for small 15,000-20,000 towards the larger 40 ton plus carrying capacity to service the sq feet warehouses would go away, to be replaced by larger 150,000 larger warehouses The logistics cost in our country is currently at 14% of GDP, to 200,000 sq feet warehouses. After the implementation of the GST, inter-state sales transactions would become tax neutral, and making it one of the most inefficient countries to do business. The goal is to take this to the level of 8-9%, where most of the the whole country would become one single market. Companies setting up their warehousing facilities would developed countries are operating. According to UBS, if the base their decisions on supply chain efficiencies rather than tax distance covered goes up by 20 per cent per day, Indian truck requirements. More importantly, goods would be priced and productivity would improve by 12 per cent. CII estimates show margins calculated properly, without worrying about where the that this change would boost the economic growth and could product was finally shipping. Companies would now be able to increase the India GDP by 1-2%

June 2015 LOGISTICS TIMES

GST, the silver lining

warehouses in locations like Pondicherry he GST is a major tax reform and or Daman, often impractical from a will lead to single nationwide distribution point of view, as the CST rate sales tax and that passage of at such locations were previously lower GST bill will also help in the than the rates prevalent in other states. development of warehousing sector in As compared to this, the liability of the country, leading to consolidation of the GST will be about uniform across the warehouses and factories. board, thereby eliminating the cascading Till about a decade ago, warehousing effect of taxes. It will reduce the price in India was synonymous with a shed differences by making all regional tax and four walls. A warehouse management liabilities equal. This will remove the system was essentially a man with a cost difference between states and lead notebook keeping track of the inventory to a homogenous growth of warehousing that came in and left the premises. Heavy across the nation. losses resulted from the lack of modern As a result of reduced tax liability, GST warehousing facilities. Even today, a Rahul Mehra will reduce the share of the unorganized large part of warehousing continues to CEO, AWL India sector in warehousing. Prices charged by be unorganized with mostly sheds for the organized players will come down storage. Due to the lack of modernization, the industry is now facing a huge gap between demand and supply and this gap continues to GST will reduce the share of the unorganized widen mainly because demand for warehousing is expected to sector in warehousing. Prices charged by the grow further. organized players will come down and reduce High costs are eating into the warehousing growth in the price advantage that the unorganized India. Adhoc taxes levied at the state and central level warehouses currently enjoy. Thus, GST will have further contributed to higher costs of warehousing. level the playing field and create an equitable This is the main reason why development of the industry across India. I unorganized activity in the sector is flourishing. The only believe that this one factor could drive growth way to curb unorganized activity and bring down prices of warehousing in India. of warehousing is to unify the tax structure in the economy. And here, the Goods and Service tax (GST) is the â&#x20AC;&#x2DC;Silver and reduce the price advantage that the unorganized warehouses Liningâ&#x20AC;&#x2122; which will make taxes destination based rather than origin currently enjoy. Thus, GST will level the playing field and create based. Currently the supply of a product from the manufacturing an equitable development of the industry across India. I believe location to the customer entails an excise duty, a VAT which that this one factor could drive growth of warehousing in India. Not only consolidation of warehouses will take place, the GST could be imposed at state and central levels, and a central sales tax. In some states, there is also the additional burden of an octroi will also bring down logistic cost and will also reduce the time it takes for us to move a parcel from point A to point B because of which is imposed at state borders. Besides these tax implications, complex state-wise tax the multiple check posts on the way and the multiple checking structures have serious repercussions on the manufacturers. being done due to the indirect taxes that each of the states levy Inventory and distribution decisions are based on tax on movement and delivery of goods. Last but not the least, and most importantly, the roll-out of avoidance rather than operational efficiency. Accordingly, most manufacturers maintain warehouses in different states to the GST is likely to bring transparency, and simplify taxation. evidence movement of goods from one warehouse to another This would further help resolve issues which often crop up in to save on the CST. Also, quite a few entities started setting up warehousing operations.

June 2015 LOGISTICS TIMES

COVER FEATURE WAREHOUSING SPECIAL

Automation will be in big demand

t is a well-known fact that a company having multiple warehouses in multiple states enables savings on CST and only pay LST. Complex tax structure is the reason why most of the companies consider tax saving as an important factor while planning their warehouse strategy, thereby implementing economic solutions rather than achieving operational efficiencies. The problem is that, state level taxes are applicable on top of central taxes. This means the manufacturers are paying double taxes. Only way they see to avoid this multi tax scenario is to have small warehouses in each state (multiple

Suunil Dabral Country Head, Schafer India

uniform tax structure, the need for multiple warehouses for the sake of saving on taxes would be non-existent and therefore this would bring about a promising change in the spending behaviour on warehousing and encourage the manufacturers to focus on matters like facelift of the warehouse, up-gradation in technology, Automation in Material Handling. The very nature of the way the industry would look at warehousing needs would witness a significant transformation. But it remains to be seen whether GST would be implemented wholly, partially or on a piecemeal basis and therefore the transformation rate would be dependent on this factor. In the end whatever it is the current ‘theoretical assumptions on

With a uniform tax structure, the need for multiple warehouses for the sake of saving on taxes would be non-existent and therefore this would bring about a promising change in the spending behaviour on warehousing and encourage the manufacturers to focus on matters like facelift of the warehouse, up-gradation in technology, Automation in Material Handling. locations) to reduce tax burden. Therefore the dichotomous tax regime leads to companies needlessly spending more money and effort on the sheer number of warehouses. This in turn leads to the necessity to maintain capital expenditure and costs on the company’s side and therefore leads to commissioning of warehouses that are smaller and less efficient in nature. But if a company wants to carry out business pan India (i.e. across most of the states), this becomes a tough proposition and perhaps a deterrent from seeking more business opportunities in India where both the country as well as the company are in for a loss. The warehousing market in India has been performing very well over the years but it is quite skewed against large scale automated warehousing. But this segment will see tremendous growth opportunities with the implementation of GST. With a

the GST after-effects’ on warehousing consolidation, improved infra-structure, and automation technologies will be dependent on the implementable GST framework and modus-operandi. The highlight of Union Budget 2015 is the boost given to the “Infrastructure Development” and the “Make in India” concept. On a positive note the significant outlay on infrastructure has created a sense of confidence amongst the investors. The amendment and a hike in service tax rate will definitely be a burden on the consumers however it should be treated as a gradual progression towards a uniform GST expected next year. The well-thought budget which has potential to become a road map for long term goals of raising funds for infrastructure will definitely call for new generation warehouses. All in all the industry has high hopes from the government and a lot depends on the implementation of the proposed promises.

June 2015 LOGISTICS TIMES

GST Logistically

category - you need to identify DNA f you are a supply chain leader and of your supply chain is it responsive or had tough time explaining higher cost effective supply chain or a mix of number & complexity of warehouse both with more weight on responsive operation in India to your global side. For example – a company need to team then your tough time will vanish have a warehouse in a state to save on soon, probably. taxation but if a state already have more If you are a supply chain manager and than one warehouse (e.g. larger states i.e. have tough time replying to sales team for UP, Rajasthan, Madhya Pradesh) then stock out situation in one warehouse & it will be largely unaffected. Then there excess stock in other warehouse then your are state where you keep warehouse only tough time will evaporate in the air soon, for the sake of billing to save CST here probably. you may have to take a call on servicing If you are an executive and have tough distributor of that state (examples of this time managing transport & arranging is states such as Uttarakhand, Himachal, road permit for shipments & managing Amit Kumar Jharkhand, Chhattisgarh, Kerala, Bihar & agent at state border then your tough time Supply Chain, Ambay India all of north east state}. will vanish soon, probably. A back of the envelop calculation So do you think GST is going to suggests for an FMCG company a 8-10 make your supply chain from profane to kg shipper handing cost is around INR 97/Case (which includes profound?Let us check that out. There have already been enough of expert opinion, debate loading at factory - primary transport - Mother Warehouse & articles written on possible aesthetics, design, rates, inclusion secondary transport - state warehouse - tertiary transport to & exclusion of product in the list of GST but none of these distributor’s point unloading). While in GST environment if we put spotlight on how “Transport Architecture” & “Warehouse eliminate state warehouse & tertiary transport to distributor it Engineering” will be after GST. There is absolute lack of will cost us around INR 78/case and if do direct shipment from discussion on how GST is going to trigger transport & warehouse factory it will cost us around INR 57/case which saves between 19% to 41 % in direct cost and then there is reduced transit metabolism for your business. In this article, we will take pole position and discuss different time and reduction in inventory which will ensure higher stock turnover & higher ROI & ROA. I am sure 19% to 41 % will be GST scenario you can identify your supply chain with: Category 1: For these cluster “No stand is the best stand”, Let fantastic cost to kill. The prime shine of GST will be “Big boxes” – both in GST come. Nothing will happen overnight. It will take six months to settle the things. They will surely have tough warehouse & in transport. Let us take it one by one. On Warehouse side, Warehouse will be fewer in number time & lot of last minute run-up. This stand will cost them but bigger & larger in size easily comparable with international costly. Category 2: This cluster exactly start from where first category standard with a shade of automation and competing companies finishes i.e. why to waste six months after GST. Their six will be willing to share facility & distribution modes to squeeze month month start before execution of GST & not after the logistics cost & service ever potent modern trade. There will it. While these sets of company will be proactive but also be one warehouse at each 300 to 400 kilometers radius (one day practice restraint of reaction and will play the card with transit/service time). Each of the four regions can be served from 2-3 warehouses instead of current warehouse footprint of the time. Category 3: These clusters of people are aggressive & immensely 8-10. Of courses size of warehouse will increase by 3x to 5x. Another by-product of GST would be warehouse technology proactive and will be using GST as an opportunity to realign & revise their warehouse infrastructure & which will help in upend variability of information between transport set up. This category includes leaders from warehouses. Up to now, Technology story says, most of the automobile, FMCG & CD. They have already mapped company shy away from implementation of ERP in all the aggressive reduction of warehouse from 35 or 40 current warehouses looking at the cost of execution & number of to 10-15 warehouse in first year of GST and finally settle warehouses. But with GST, it will become more of a “need” since at 6-8 warehouse in year 2. They are already charted up number of warehouses will shrink to single digit. It will be easy with their blue ocean strategy & red ocean strategy wrt to and strategic for companies to connect it with ERP & so much so that they will implement most advance WMS mapping up to Supply Chain. Wait, before you donned that thinking hat to identify your SKU location level on the pallet & to the cases on it.

June 2015 LOGISTICS TIMES

COVER FEATURE WAREHOUSING SPECIAL

Another derivative of GST would be warehouse automation, one of the major roadblocks of automation was lack of volume or throughput, in the new era with consolidations companies will be able to generate volume which will lead to automation in warehouse. Another supporting cause for automation would be unwillingness of companies to be dependent on manpower because of growing manpower compliances, absenteeism, especially unavailability of labor during festival season. To make it more contextual, Amazon in US employs as many as 15,000 Kiva robots at their 10 big fulfillment center to do the basic warehouse job such as picking from shelf. They are more needed during Christmas, cyber Monday & Black Friday dispatches, and it bought Amazon in the catbird seat as It picks 50% more item, reduces pick up cycle time on the floor & reduces operating cost too. In Indian Connectivity will play important jigs context, companies will start from basics such as use between warehouse(s) & market(s) and rolling conveyor, gravity conveyor, BOPT to the little advance one i.e. put to light or automated sorting kind this precisely will be hallmark of postof system in higher volume environment. GST scenario In the direct dispatch environment there will be more frill advantages i.e. instances of less damage since it will Nagpur for North of Maharashtra, Central & west Madhya Pradesh, Raipur &bilaspur belt of Chhattisgarh be direct ship model where in you may negotiate with your underwriters or may completely disown the insurance part West Region: in transport itself (some of the FMCG companies are already Ahmedabad for Gujarat, south Rajasthan (Udaipur, Banswara, Chittoorgarh) practicing that). Another gain will come from reduced number of transshipment which will eliminate touch or handing. Hence, Bhiwandi for Maharashtra, Daman & Diu, Surat, Goa, upper Karnataka (Gulbarga, Bijapur) we may not require stronger shipper / carton & may graduate to relatively economical shipper with lighter specifications. Direct South Region: shipment will also unleash modern way of handing i.e. palletized Bangalore for Lower & Central Karnataka, lower Telangana, west & North Tamilnadu i.e. Erode, Salem movement from factory to warehouse and since these warehouse will be modern warehouse it will be equipped with forklift & Chennai for East & south Tamilnadu, Pondicherry, South Andhra Pradesh, north Kerala stacker. This will reduce labor cost & unloading & loading time. According to logistics pundits, a possible warehouse Coimbatore for whole of Kerala, west & south Tamilnadu, Madurai, Rameshwaram assortment on regional basis is as below: These locations are just indicative and a lot will depend on In North Region: Ambala catering Punjab, Haryana, Himachal Pradesh production facility market, warehouse supply, supply of related & part of Uttarakhand upper Rajasthan such as warehouse infrastructure, freight consideration will also be at play such as negative freight, circular freight, balance freight etc. Hanumangarh&Ganaganagar. Another eye-popping topic for supply chain practitioner will Hassangarh/ Ghaziabad for Delhi, West & central Uttar Pradesh, Haryana (Gurgaon, Faridabad, Jhajjar, Rewari) & be “Freight/Transportation” in GST environment.Connectivity will play important jigs between warehouse(s) & market(s) and part of Uttarakhand, East Rajasthan (Alwar, Jaipur, Sikar) this precisely will be hallmark of post-GST scenario and mind East Region: Kolkata for West Bengal, Orissa Jharkhand east Bihar & it I am not talking about road connectivity but rail connectivity. Take a walk in to future and you will see real prime of transport i.e. Sikkim Varanasi for UP & west Bihar, Rewa& other part of Madhya higher speed & reduced freight coming in from rake movement. Since warehouse will be consolidated it will generate load to Pradesh, Upper part of Chhattisgarh Ambikapur justify rake movement between region. Central Region:

June 2015 LOGISTICS TIMES

On the cusp of change

be automated to advantage by laser guided he Indian warehousing vehicles, increasing both warehouse scenario is changing efficiency and safety while reducing significantly, resulting in a costs. gradual metamorphosis from LGV systems are usually implemented the traditional dilapidated, ill-equipped in existing warehouse environments, with remotely located godowns to modern little site modification required except formats. Value added services are being for small passive reflectors located within offered overhauling the conventional the area to be automated. The system can definition of ‘storage.’ Applications of achieve a high level of flexibility by block inventory management on a just-instacking, drive-in racks, gravity racks, time ( JIT) basis, concepts like vendor push back racks and narrow aisle racking, managed inventory (VMI), value addition giving the warehouse. ICT tools like RFID in the reverse logistics leg of products for may also be deployed. returns, repair, refurbish, remanufacture The value proposition of cloud or recycling, bonded warehousing and Prof. Samir K Srivastava computing at the back-end is also quite processes such as sorting, grading, exciting. However, mere implementation bar coding, MRP tagging, packaging, repackaging, transshipment, quality checking and cross-docking are becoming Warehousing sector after implementation increasingly common. According to a recent CRISIL report of GST will change not only due to location the size of the Indian warehousing industry redesign but also due to considerations related is currently pegged at ~USD 11 billion and is growing at over 10% annually. Modern to technology adoption, personnel skills as well warehousing is anticipated to reach 178 as the possible concomitant regulatory changes. million sq. ft. by end of 2015 (30% of overall warehousing space). This growth is Industry stakeholders also need to take care being driven by rising domestic and EXIM freight volumes, increased outsourcing of two other aspects — customers’ key buying to 3PL and 4PL players, strengthened criteria and critical service factors. investment in infrastructure, organized retail and the impending implementation of Goods and Services Tax (GST). So, Indian warehousing is of an integrated warehouse management information system does not actually guarantees the optimization of warehouse logistics. surely on the cusp of change. The earlier structure of state taxes and laws made setting In order to improve the overall systems efficiency, it is required up warehouses in each state cost-effective. However, after that ERP implementation be combined with the redesign and implementation of GST, managing with just a few warehouses the reorganization of warehouse logistics and processes. From supply chain management perspective, in addition serving a host of smaller, transit warehouses in over four to five surrounding states (hubs and spokes model of logistics) is likely to improving internal efficiency, a real-time view of inventory and warehouse activity can improve customer satisfaction by to be more responsive and cost-effective. Warehousing sector after implementation of GST will change facilitating timelier and more accurate shipping. It also allows not only due to location redesign but also due to considerations companies to simplify tracking of hazardous and date-sensitive related to technology adoption, personnel skills as well as the materials for improved regulatory and recall compliance. So, focus possible concomitant regulatory changes. Industry stakeholders of firms should be on categories, volumes, accuracy, visibility and also need to take care of two other aspects — customers’ key integration. They need to make smarter use of existing space to avoid costly expansions. They should take actions to optimize buying criteria and critical service factors. The rapid transformation of physical infrastructure for storage movement within the warehouse to cut the time wasted in would be incomplete without the adoption of supporting ICT. warehouse operations. As there is a great degree of interaction between warehouse Technology constitutes the backbone of a strong and efficient modern warehouse that encourages accuracy, inventory tracking space requirements and materials management, suitable material and lowered operational costs. The activities of warehouses can management policies and practices may make it possible to

June 2015 LOGISTICS TIMES

COVER FEATURE WAREHOUSING SPECIAL

postpone or eliminate the need for expansion in many cases. Similarly, storage and order, the two warehouse functions that have the largest impact on the overall warehouse operational performance including storage capacity, space utilization and order picking efficiency, may be improved. There exists sufficient scope for improvements applying basic operations principles like lean / six sigma, low cost automation and use of Operations Research (OR) tools and heuristics in decision-making. The ecommerce sector used 1.7 million square feet of warehousing space in 2014 which is about 25 percent of total available warehousing space. Support facilities for e-commerce including merchandizing, purchasing, packaging and cataloguing have created millions of jobs. Flipkart alone aims to generate 20 lakh jobs in 2015. Overall. India needs approximately 30,000–35,000 warehouse managers alone. Government, policy makers and private sectors players must take cognizance of this and develop a collaborative approach to set up skill development infrastructure to create trained and qualified personnel for these job opportunities. Further, managerial initiatives like employee involvement, incentive alignment and skill upgradation of employees need to be taken care of. Developments are taking place on the infrastructure and regulatory front giving players in warehousing sector the

flexibility to scale, integrate and innovate. The FTWZ (FreeTrade Warehousing Zone) model offers significant potential to overhaul the supply chain and a 100-acre FTWZ is being set up at Kamarajar Port. National Commodities and Derivatives Exchange of India (NCDEX) plans to set up 1,000 warehouses dedicated to its forward contracts over next two years. Government focus on food preservation is leading to a major change in the Indian cold chain industry. Given that 30-40% of wood goes waste due to insufficient and improper storage, the Food Corporation of India (FCI) is considering hiring private warehouses for storing food grains in northeast India. Another welcome change is Securities and Exchange Board of India (SEBI) permitting brokers to enter into warehousing transactions. Aligning storage models such as multi-modal logistics parks (MMLPs), mega food parks (MFPs) and FTWZs with the development of key infrastructure projects related to port, highway, and rail projects — such as the GQ project, the NSEW project and the DFC project — to facilitate cohesive network development would change the scenario further. “Green Logistics” policies and strategies to reduce the environmental/ energy footprint of freight and focuses on material handling, waste management, packaging and transport also show promise.

Await cross-docking centers

fashion, jewelry we may still need warehouse s it is Logistics Industry is trying to at destination. Highly service sensitive item metamorphosis from an underdog would also need warehouse at destination. If into new angel on the Indian the consumption is high and the warehousing industry firmament. With the GST space and cost of managing warehousing is which is in all likelihood to be introduced low and if this more than offset the additional from April 2016 there would be paradigm local storage and delivery cost then it could shift in the way the logistics has been thought, again make sense to have warehouse at designed and implemented. destination. To sum up it means that instead Till now supply chain was designed of tax cost implication being the prime and warehouses were located based on the Ramesh Krishnan consideration for deciding the Supply chain tax structures at various states rather than Head- Warehousing & model and choosing of warehouse location it logistics cost considerations. Companies Contract Logistics, DLI would now depend more on supply chain cost moved stock on Branch transfer basis to and performance efficiency while deciding company own warehouses to avoid tax and incurred huge warehousing cost before delivering to distributor the location of warehouse. This would mean in many consumption point warehouse or final consumption. There is a misnomer that all companies would now have would shut down. Even white goods, furniture and CDIT can be warehouse at origin and do consolidation. Though this would planned for direct delivery from regional or National warehouse happen in a big way this is not necessarily true for all. Yes although basis delivery commitments. However thanks to fast track at each point of sales there still would be tax, the input credit development of E commerce and growing Fashion Industry items, would be claimed of each previous tax incurred on the product which would still like to store the stock near the consumption and hence the impact would primarily of only the last point tax point and are also very time sensitive with commitment to deliver and now there would also be uniform tax structure across the between few hours to 48 hours, hencethose warehouse which country hence there is no need to have warehouse at destination one would have feared would shut down due to GST would be point especially if stock can be delivered directly to customer / lapped by this new channel of business. However they may need only smaller and in some cases only as cross docking centers at distributor in the most cost effective mode of transportation. However for items which are high value but low volume like destinations.

June 2015 LOGISTICS TIMES

It ain’t over, till it is actually over

clear deviation from the erstwhile model hile the industry in general that was dependent on the vagaries of tax (and we as individuals) issues- GST would put an end to this! over the last decade or Thus, high-rise and large boxes so has gone all cynical on admeasuring more than 0.5mn sq.ft. the issue of GST- for all obvious reasons, would soon become the norm rather the time now seems to be ripe enough for than the exception. These boxes would all to heave a sigh of relief as the panacea compete with their western counterparts that all have been waiting for- the GST, in their efficiency and performanceseems to be round the block. The advent driven by the use of racking- from SPR of GST has never looked more realistic to mobile to ASRS, with the use of the ever before- the country is at the brink MHEs- from Reach Trucks to VNAs to of realizing something that has long been Articulated Fork Lifts and the cutting aspirational, but unfathomable for a very edge technology etc. long time. However, as they say it ain’t Personnel: The only variable that could OVER, till it actually is OVER… VineetMehrotra, Managing Director impede this stellar growth of the industry The scenario I would like to paint FONTY Supply Chain Solutions would be the deep chasm between the is with the premise that GST would be supply and demand for quality manpower implemented- sooner rather than later. With the implementation of GST now being a foregone conclusion, the supply chain field (loosely called the This rosy picture is dependent on GST industry) would go through a sea change. Many of the being implemented soon, but between the players over the past few years had already undertaken cup and the lip, a morsel may slip, goes the task to get GST ready, the laggards would now follow suit. I foresee the events unfolding in various strands as the old adage. So, with caution in mind, I under: feel that ACHEY DIN for the Warehousing 3PL / 4PL: While already having a CAGR of 20% plus and expected to reach US$8Bn by 2019, I expect sector in particular and the Supply Chain the 3PL market to get a huge positive boost with the industry in general are imminent. GST implementation. Another variable in the play would be the burgeoning 4PL sector that would add to the for the job. Right from simple MHE operator to the Operations’ growth of the overall Supply Chain industry, despite the love and Manager for the warehouses, the industry today faces a huge hate relationship that they share with the 3PL players. The key dearth of the quality personnel. While some of the major players have taken charge to resolve the issue by opening up their own drivers, besides the GST, for this growth would be: training centers and schools, a more concerted effort at the • The governmental focus on infrastructure industry level is the need of the hour. This is a difficult task, • The unbridled growth in organized retail and • The acceptance of the general industry that the final though not insurmountable. differentiator between the winners and the losers would be Consolidation: With this background, while we shall see all sorts of investors coming into the fray and trying to capitalize on this their Supply Chains, as to: sunrise sector, the moment is not far, where we shall see some o How robust they are M&A activity happening too. With the general positive market o How agile they are sentiment prevailing, strong companies in the 3PL industry would o How adaptive they are try and consolidate their positions through the acquisition route. o How cost-effective they are and lastly One can also expect a lot of activity through PE firms, where in o How customer-centric they are Mathematically speaking this forecasted size of US$8Bn of the local, small to medium sized and professionally run operators 3PL is just the tip of the iceberg as this only takes into account (on the back of PE funding) would go on a buying spree to widen the organized sector. There exists another US$132Bn, that is the and deepen their respective geographical and sectorial reach. As I started earlier, this rosy picture is dependent on GST unorganized sector of the SC industry, which is a fair game for being implemented soon, but between the cup and the lip, a the 3PL players Infrastructure: A true hub and spoke model, which is purely morsel may slip, goes the old adage. So, with caution in mind, I based on the companies’ need to have a customer driven supply feel that ACHEY DIN for the Warehousing sector in particular chain is on the anvil for the entire industry. This would be a and the Supply Chain industry in general are imminent.

June 2015 LOGISTICS TIMES

COVER FEATURE WAREHOUSING SPECIAL

Challenges galore

Internet and Communication he Indian business ecosphere, Technology (ICT) - Sensors lie at the at large, has been tepid in heart of an IoT-enabled smart, connected its response to the prospect world. WMS system architects will need to of the Goods & Sales Tax assess which components of warehousing (GST) rollout. Back-of-the-envelope performance can embody agility, calculations show the GST will eventually adaptability and alignment in their quest help in augmenting GDP growth by to delight customers through the entire approximately 2% in a staggered manner customer lifecycle. The ICT preparedness over a sustained time period. As supply will enable warehouses to perform at six chain systems, especially the warehousing sigma levels of customer satisfaction on a infrastructure and management spheres, sustained basis. will be at the epic-enter of this reform, Funding: Corporations will it’s appropriate to take a strategic view of find building green-field warehouse the ramifications this tax will have on the infrastructure (project owners as well country’s supply chain industry. Abhijit Chaudhary as LSPs) unattractive considering low Changes accompanying GST Founder- Milestone Consulting ROA; they will need to lobby alongside implementation: Impact of taxing industry confederations to urge the products at the point of sale (future state, post GST) vis-a-vis at the point of production (current state, pre GST) will be the stimulus which The first wave of GST implementation will will force disruption in warehouse management compel companies to recalibrate existing systems (WMS). The first wave of GST implementation will hub-and-spoke warehouse planning. We compel companies to recalibrate existing hub- will observe a move away from state-level and-spoke warehouse planning. We will observe a move away from state-level warehouses, built warehouses, built to facilitate stock transfer, to facilitate stock transfer, to a combination of to a combination of mother warehouse / mother warehouse / distribution center (DC), distribution center (DC), regional warehouse, regional warehouse, mobile warehouse (stock on wheels), and channel / distributor stocking mobile warehouse (stock on wheels), and points. channel / distributor stocking points. WMS Infrastructure - Although most owners would attempt to modernize existing warehouse / storage central and state governments for corpus creation to facilitate facilities, the long term sustenance of investments will point favorably termed loan options. Similarly, ICT infrastructure, too, towards building greenfield warehousing infrastructure to take will require government assistance – this could be in the form of advantage of the state-of-the-art internet and communication cloud-based secure data storage, or free Internet access across the technology as well as smart, connected material handling country. Penetration of e-commerce in India has already shown us the way; the GST rollout will call for growing this facility capabilities. Smart, connected material handling systems - I foresee two exponentially. Management: One of the key performance parameters under features of material transportation and handling undergoing a WMS ought to be the ability of managers to build algorithms futuristic overhaul: First point collection of cargo: With the freedom to move capable of connecting the cause and the effect thereof as an cargo without state border hindrance, aggregating platforms will equation e.g. recovery of rent per unit area from the warehousing facilitate cross docking / milk-run ability of logistics companies space, or Operating Equipment Efficiency (OEE, a lean (Uber-like behaviour). This will force warehouses to mechanize terminology, expressed as a product of equipment availability X loading bays with extensive support from Internet-of-things productivity X output quality) for material handling systems. For starters, this may be a formidable proposition, but with focussed (IoT) enabled devices. Last mile distribution: Similar to first point collection, but training, such ability may be imparted to managers. The structure with additional focus on the area of correct first-time pick and of WMS ought to be enabling rather than instructive. Education and Training: Post GST rollout, the new layered pack assisted by quality mobile modules / services for kitting and warehousing arrangement will call for talent spread uniformly rebranding activities.

June 2015 LOGISTICS TIMES

to ensure the ability of the front-end (voice of the customer) is constantly evaluated and aligned with the solution focus of the back-end (voice of process); this is best done by engaging operating staff in core and cross-functional training. Building Sustainable Ecosystem: Traditionally, warehouses have been managed without keeping the environment in mind. An engaged market (India is poised to become the third largest economy by 2030) cannot ignore sustainability, the operating concept in the philosophy of growth and development. This will demand warehouse design and management keeping in view the sustainability of economy, ecology and environment. Ultimate Caveat - The flipside: The rearrangement of

Battle ready

warehousing infrastructure, post-GST rollout, will bring in its wake significant job loss (inability to shift personnel to new locations, automation of low skill / unskilled jobs, etc.). Retrenchment and reallocation of jobs to such workmen will draw the battle line between workmen and project owners, who will do well to build an appropriate strategy to pre-empt such a scenario, and build a mutually acceptable mitigation plan. These job losses will be replaced by new job creation in greenfield areas. It may be a good idea to reskill some existing talents in areas of business planning, audit and compliance, customer relationship management, application development, process automation and so on.

Levels (Influence revenues) and Cost of ST is expected to be Customer Service (Influences profitability implemented by fiscal 2016of delivery network) will drive network 17 and is aimed at replacing design. multiplicity of taxes and Whether to carry out activities (such their cascading effect. GST will replace a as bundling, labelling and repackaging) number of taxes like Sales, Excise, Service within the DCs will be a choice since you taxes and drive out entry and Octroi would need to pay GST if input value and duties. The whole country becomes one output value change. Large reduction single common market without any state in inventory levels is seen because of borders. reduction in number of warehouse. (Total Supply of goods and services becomes inventory in the system is proportional to taxable event rather than manufacture and square-root of stocking locations) sale of goods. This fundamental change Fewer warehouses will handle high alters location of tax and thereby bringing levels of transactions. Large warehouses Supply Chain, although not amounting to Capt. UdayPalsule, Managing will be required to provide very high manufacture or sale, firmly in the ambit of Director, Spear Logistics Pvt.Ltd. transaction fulfillment, maintain high GST. Inventory integrity and provide high Fiscal restriction in way of prudent Distribution Logistics Network design is about to be removed. visibility and traceability to Inventory. They will need to deliver Leading companies have already prepared plans for fewer DCs newer Value added services. Such large, complex DCs will need to dictated by demand density, operational footprint rather than be well invested with Material Handling and Storage Equipment, taxation. Local sale, stock transfer will not drive location of IT and trained manpower. Organized players in warehousing will warehouses and transportation volumes. Customer Service be able to play their role effectively.

Space for Godown/warehouse

1000 sq ft space available Address G Block, Sector 63 Noida. Contact: 9873938815 /9958760555 Ideal for E- Com or Courier companies.

Ideal for E- Com or Courier companies.

June 2015 LOGISTICS TIMES

VISITOR DIARY

Ramesh Kumar

Godzilla godown... oops, Warehouse!

“It’s so hot. Where are you going?” Well, that was my concerned daughter, worried about me stepping out under the sweltering heat. “Pataudi, Gurgaon”, I responded. “What for?” “Visiting DHL Warehouse.” “What? Warehouse?.... You mean godown?” “Look, it is NOT godown. ... But warehouse. Modern. State of the art. Multinational company’s,” I tried to convince. “What’s there to see?” It was her again. No amount of explanation and the difference between a godown and warehouse would register in their psyche. Why waste time? Meanwhlie I heard my better half muttering, “Crazy guy” from the kitchen. For me, transportation is sexy. Logistics is sexy. Supply chain is sexy. Warehouse too. Soon, I will detect that I have a

June 2015 LOGISTICS TIMES

soul mate: Ashish Negi, Director (Operations), DHL Supply Chain India, who again echoes the same sentiment. He proudly declares, “warehousing is sexy. If not, I would not have been in this business”, when I shake hands with him after two hour long drive from Qutub Minar under the NCR heat. Pataudi is not an unfamiliar territory, not because of the royal India cricketing captain’s haveli (Remember Mansur Ali Khan Pataudi?) in that zone. But because my erstwhile colleague’s home in the midst of his own several acres paddy fields is in the same area and I had visited last time 15 years ago. Fields everywhere and a railway fatak (crossing) somewhere

there. Today, there is a railway overbridge and no more long waits watching passing trains in both directions before crossing. Almost 10 km from National Highway 8 linking Delhi with Jaipur, one turns right near the old Manesar toll plaza and keep passing several sky blue-coloured warehouses on either side of the State highway. Locals are salivating over the soon to be rolled out GST and quietly leasing out their prime agriculturalturned-commercial usage lands to 3PLs. Three years ago, DHL Supply Chain India has spotted a location in this stretch and invested in building a state of the art 300,000 sq.ft warehouse as a multi-user site. The economic growth is heading for

June 2015 LOGISTICS TIMES

Ashish Negi Director (Operations) DHL Supply Chain India

an uptick certainly. Otherwise, why DHL should go in for a replica of the existing one in the adjacent plot of land of same 300,000 sq. Ft? Warehouse visitations are nothing new to me. This is not the first and this will not be the last. The evolution from traditional godowns (dumping yards, honestly speaking) to modern warehouses is something I cherish and chronicling for years. So when Vikas Anand, Managing Director of DHL Supply Chain India, harped on what his company was doing in the warehousing arena more than a year ago and specifically talked about this Pataudi facility, the die was cast. It was just a question of time before I could really drive down to its portals to get a feel of it. MNCs do things in style, believe me. Also systematically. Irrespective of whether A or B is the leader, the process would be the same. Total standardisation. Like you have seen one McD outlet anywhere in the world and hey presto! You’ve seen all McD outlets. Ditto. Or, like the Arabs say, ‘same, same’. No sooner did we (self and photographer Syed Kausar Hussain) alight down near the security gate, the DHL escort leads us to the security counter. We are web-cammed , electronically registered

VISITOR DIARY our entry and then ... The young DHL escort hands over a folder listing out safety procedures and what to do in the likelihood of any emergency. Just not that. He wants me to watch a short video clip mounted at the eye level – yes, you’ve guessed rightly – some officially looking gent verbally instructing on safety issues before entering the DHL fortress. “No camera shoots” by the security offputs my colleague. Luckily, the DHL escort comes to his rescue by saying that Kausar could shoot exteriors of DHL facility, but not inside. Needless to say, Kauser goes berserk. Again, he has to be cautioned that all his shooting could be done from the pathway marked for walking to DHL Supply Chain office a few 100 feet away. Much later, I would understand this safety obsession with DHL: “Safety is Everyone’s Responsibility” is its credo. For starters, Ashish throws some numbers for me to mull: 300,000 sq.ft. 44 operating docks with ramps and dock shelters. 350 vehicles per day inbound & outbound vehicle that enters and exits 24x7x365 barring a few national holidays. 13 metres height from surface to roof. Six tonnes/sq.mtr. Yellow and Red beamed racks. Hardly 35 hands on DHL rolls and a full strength of 250. Any point of time, 100 hands at work. 5% skylight. Three clients: P&G, Nokia Siemens. Apple. Significant numbers, indeed. “Godzilla!” I exclaim referring to the size. Ashish, in his second stint at DHL, interjects: “Technically, yes. This is the largest under one roof. But our Bangalore warehouse is approx. 350,000 sq.ft but separated by a wall.” The ever cheerful Arvind Nayal, Operations Manager,

Arvind Nayal Operations, Manager DHL Supply Chain India

adds that they have handled 378 trucks on a particular day. Yes, the highest throughput in terms of trucks. DHL has eight sites: 4 in the west, three in south and one in north. This Pataudi facility is on a long term lease from Indo-Space. What, according to this Chemistry honours with a MBA (marketing) to the hilt and a long innings in 3PL, are the challenges in warehouse management? “It is an easy job, actually. You’ve to understand that logistics is just four big things: (site) infrastructure, people, processes and technology”, avers Ashish. You have these four in place and it is a child’s play. Is it? Proof of the pudding is in the eating, isn’t it? We step out for a physical walk through. That’s why am here. Hang on. “Please change your footwear,” requests Arvind before stepping into the sanitised warehousing area. A pair of thick industrial boots plucked out from somewhere quietly replace my floaters. Dust proof initiative, perhaps. Kausar’s camera is confiscated by the security at this gate. That’s when I notice an army-looking sentry shadowing us right through. “Safety is everybody’s responsibility” – here the client’s product confidentiality is also a safety issue from marketing perspective, perhaps.

June 2015 LOGISTICS TIMES

He would not leave us until we exit the main security gate after redepositing the visitor’s tag. The 270,000 rake area is hardly a few feet away from where I stand. So neat and clean, one can sit on the floor and get food served. Am a sentimental south Indian and prefer floor eating over table eating! How does Arvind manage such 5-star hospital/hotel type cleanliness? Automation. Their sweeping machine would cleanse 3,000 sq.ft/ hour: faster, lasts long and saves time and manpower. Ultimate Objective: dust free environment. Client happy. DHL happy. Everyone. Tell me, who does not like a neat and clean surrounding...

Swatch Bharat Abhiyan inside DHL facility. Prime Minister Narendra Modi would equally be happy. Namo or no, DHL would have done it on their own. They don’t need any proddings. They rightly consider sanitised environment as a value-added proposition that fetches business and adds extra bucks to their kitty. Suddenly, the images of visit to Toyota Distribution Centre in Mysore, M J Logistics warehouse for Tata Motors at Palwal, Fiat India Automobile’s Warehouse at Chakan, massive Mobis warehouse servicing Hyundai Motors in Chennai, Menlo Worldwide managed General Motors facility at Ballabgarh

begin to dance on my mindscreen. Each one of them is a marvellous piece of supply chain element. Only a professional supply chainer would appreciate this. Or a bloke like me who loves chronicling such disciplined way of managing things, however mundane the chore maybe. Aren’t there other warehouses that are bigger than DHL or taller in terms of ground-to-roof? Am sure they do exist. If memory serves right, TCI Supply Chain manages something with a height of 17 metres in Pune for an auto OEM client. What about Om Logistics that boasts of a slew of warehouses? Or Safe Express, supposed to be the Big Daddy of

June 2015 LOGISTICS TIMES

warehouse guys? On second thoughts, I remember spending a day at its sprawling topnotch facility on NH 8 a few years ago. I am game, but the invite has to come. It will, am confident. Barring the skylight roof, I see no turbo ventilators. Arvind hastens to explain by pointing at air controllers that ensures six shots of fresh air every hour. DHL has done away with turbo ventilators to eliminate water seepage and pests. RF detectors and fire detectors are placed strategically. “No paper and pencil. Our racks are RF-ed and our guys use guns,” explains Ashish. Guns? Not the life-snappers, but electronic devices. Automation to the core. Sufficient

VISITOR DIARY

number of material handling equipments are in operation. Helmeted workforce are at their task either loading/unloading or picking items for storage for dispatch like silent honey bees. Arivnd’s team consists of shift supervisors and their team that work round the clock. Every shift begins with a tool box meeting where the work allocation for the day is discussed. Good work during the preceding shift is appreciated and challenges if any are heard and solutions hammered out. Very systematic. Everything works clock-like precision. Alerted by the customer well in advance about the impending arrival of consignment from manufacturing site or port, Arvind’s team is ready. In less than 90 minutes, the consignment is unloaded by the putaway team, segregated and kept ready for slotting. So also in the reverse direction. The coordination between the client and DHL is immaculate, thanks to automation (via Manhattan Associates and Red Prairie packages of WMS) and a well trained staff at every level under Operation Simulation Centres where everyone sits for a written test followed

by one and a half a day of theoretical class under experts’ supervision. SLAM (Stop, Look, Assess & Manage) is another constant reminder wherever one goes in this premise. Blue collar workforce – recruited through manpower suppliers from in and around the warehouse and afar in the interest of business stability strategy are put through training in inbound, outbound, packaging, inventory accuracy and cycle count. It is not a mundane job. Lot of innovation happens. For instance, they have done away with shrink wrapping mostly. Instead the usage of edge boards and ratcheted belts encouraged that provides stability, reduces polythene usage thus promoting green logistics! Under the Certified Supply Chain Specialist Program (CSCS), one of the largest employee engagement programs, every single DHL hand undergoes this two day program where they learn 3 DHL Essentials viz., Do It Right The First Time; Can Do and Passion. Passing percentage is in the higher echelons of 90 percentiles, boasts Ashish. Thanks to all these regular training

June 2015 LOGISTICS TIMES

sessions, any inbound/outbound operation does not consume more than two hours. Amazingly all these things happen with no untoward incident. Can you believe that since inception – that is 808 days since this facility opened up and also happens to be the writer is on a visit) the accident rate at this facility is ZERO. Commendable. Motivation level from the contracted labour is pretty high. Why not when you’ve something called Project Kiran under which DHL seamlessly absorbs some of the select best contracted workers on its rolls every year. Big global brand. Excellent training in the one of the ‘sexy’ supply chain core elements. The working atmosphere is so good that those who have exited at some point of time do not mind returning, given a chance. Want proof? Ashish himself is an apt example. He left after his first stint to pursue a career in teaching but returned . So also Arvind. Maybe there are more. I must tell my daughter that if there is something called another life, I wish to work for DHL. Very tempting, indeed. Sexy, too.

Reading Rose George The working and living conditions of Merchant Navy captains or pilots plying on high seas is no better than long haul truck drivers in India

Everything has a beginning. It was Jasjit Sethi, CEO of TCI Supply Chain, for me. He wrote, “ Hope to see something like this from your desk,” on November 12, 2011 while presenting The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger penned by Marc Levinson. It was – rather is – a classic. Next 12 months – yes, it took me that amount of time – I read sporadically between journeys of mine in trucks logging 21,000 km and completing two more books viz., Naked Banana! and An Affair With Indian Highways. That’s when I fell in love with containers and began to dream an Indian version of this

June 2015 LOGISTICS TIMES

concept. Two more years have gone by and my pet project, tentatively titled, The Indian Box is still in the blueprint stage. Well.... Once a romantic, always. Once a reader, always. Levinson’s superb book led me to Rose George’s Ninety Percent of Everything. Usually, blurbs hype up to generate potential reader’s buy in. But Chris Anderson, author of Makers: The New Industrial Revolution is bang on when he opines: “Her (Rose George) intelligence, curiosity, and compassion shine through on every page to reveal a fascinating world that no one knows about, though it is fundamental to our economy and way of life.” Usually I don’t read jacket blurbs and one of the first things I do is to separate the jackets of hard cover editions soon after the book arrival for convenience sake. Rose’s book was no exception. Having completed the 288-page first person account of her voyage in a container ship from Rotterdam to Singapore between January and May this year (2015), I could not disagree with Anderson. “... Ocean is the world’s wildest place because of both its fearsome natural danger and how easy it is out there go slip from the boundaries of law and civilization that seems so firm ashore,” Rose writes in her introduction and adds, “Seafarers and fishers are routinely made to work in conditions that would not be acceptable in civilized society.... Buy your fair trade coffee beans by all means but don’t assume fair trade

LOGISTICS & LITERATURE

principles govern the conditions of the men who fetch it for you. You would be mistaken.” I could not but sympathise with seafarers – pilots/ captains all and sundry on merchant navy ships crisscrossing oceans bringing cheer to end users of everything under the sun and prosperity to unseen makers and sellers across the globe again. No appreciation for the hard work put in. I could not help comparing them with the plight of long haul truck drivers on Indian highways whom I am hobnobbing with past several years. All my assumptions, presumptions and preconceived notions of better living and working conditions of “drivers of ships” and their assistants had gone for a six. Their lives are no different from that of their brethren at the steering wheel of trucks plying on Indian highways. Once again, my firm belief that “seeing is believing” vis-a-vis armchair analysis was not off the mark. Rose quotes Union leader Andrew Furuseth from his 1904 deposition when threatened with imprisonment for organising a worker’s strike saying, “You

can throw me in jail... but you can’t give me a narrower quarters than, as a seaman, I’ve always lived in; or a coarser food than I’ve always eaten, or make me lonelier than I’ve always been”. Read another unforgettable statement from an eminent academician Erol Kahveci: “the provision of leisure, recreation, religious services and communication facilities are better in UK prisons than ... on many ships our respondents worked aboard.” Pathetic. I have heard several stories – actual happenings – on sea from none other than Capt. Pawanexh Kohli, now Chief Advisor and CEO of National Centre for Cold-Chain Development (NCCD), Government of India and who had spent almost 25 years ferrying perishable fruits and vegetables for global shipping giant Dole across the global waters. Reading Rose makes me cringe. What an ungrateful world this is which does not know and recognize these captains of ships and trucks: call whatever way, you may wish. Long haul truck drivers invariably point out that every inch of their journey is

June 2015 LOGISTICS TIMES

risky, as if men in the cockpit (air) or in the control cabin of ship are safer. Rose observes, “every minute at sea is a minute in which danger has been avoided. Every minute trouble is expected from other ships, from unseen obstacles....” Just not that alone. Remuneration is another key issue. Job seekers are expected to “work for months unpaid”. Sounds familiar from Indian truck drivers’ perspective as well. Away from home and missing family weddings, children’s birthdays and school functions is part of life. Capt. Glenn’s mother goaded him in his adolescence, “what a wonderful world it would be a captain to see the world!” Again, there is the parallel with wannabe truck drivers dreaming of a free “bharat darshan” “A modern container ship is crewed by people who have no idea what they are carrying,” writes Rose. Is it not true of many long haul truck drivers about their consignment? “How does it matter?” they demand whenever I prod them about their cargo. Get the material – whatever it is – loaded, tarpaulined or door locked with consignor seal for antitheft or anti pilferage en route, collect trip expense from fleet owner and scoot out with relevant papers. When highway authorities halt for check ups, just shove the cargo papers and expect them to read and make sense out of it. If there is any discrepancy or challenge, call up office to get things sorted out legally or otherwise! Rose’s mind and pen are indeed sharp and penetrating. Unless you spend time from close quarters or get into the shoes of the observed – put it simply, live their lives – one cannot write like this. For example, she says, “Anthropologists put seafarers into a ‘high contrast folk groups’ along with firefighters, loggers and miners where what binds the group is shared danger ill-understood by others.” Amazing take. Again the parallel with long haul truck drivers is unmistakable. During the course of interaction with insurance companies to get cheap group insurance against death and accident for long haul drivers, their argument against our proposal is blunt. Listen to Selvan Dasaraj, Founder of Transport Mitra Services, who is on this job along with this

writer: “They (insurance companies) say – Driver = Accident = Death. Therefore, high risk category and so the highest premium to be charged. Again, Driver = Disease=Death. Again high risk category. Presto, the highest premium.” Fatigue is another area of interest. What is it like for seafarers? Are they rested well on their long hauls on water for months together with no land in sight? Remember the childhood poem: “Water, water everywhere, not a drop to drink”? If Rose is to be believed, they are not. Fatigue is inevitable because as Capt. Glenn is quoted saying, “The only things they can cut down are manpower, wages and victualing”. Staying awake for 24 hours increases the chances of being involved in an accident seven times, writes Rose. It is pertinent to draw attention to Ramesh Agarwal’s opening remarks at the National Convention 2015 of All India Transporters Welfare Association in early May 2015 wherein he poignantly underlined the plight of long haul drivers: they sleep hardly 2.5 hours in any 24 hour cycle while on duty. Why? Because during days they drive and at nights they keep awake to ensure the cargo is not stolen. Highways vultures in the form of RTOs, Traffic Inspectors, Commercial Tax officers and several others waiting to pounce on long haul drivers is something we are all familiar with in the Indian context. Merchant navy vessels the scene is no different. Vessels passing through the much talked about Suez Canal bear the brunt. In fact, captains call it, the Marlboro Canal. “... for smooth passage, evxery ship’s captain has to have a ready stock of Marlboros to dispense. Immigration, port health, police, security guards. The port captain takes four packs, to share. The shipping agent takes a few. The electrician gets four; the boat crew gets six. Sometimes they want more than Marlboros and the captain must go to the ond locker when an agent or port official asks for “chocolate for my babies”. The captain dispenses $400 worth of cigarettes each voyage. The cigarettes are listed on gthe ship’s budget as entertainment, port authorities, or gratuities and accepted by the company accountants as needed

expense. .... “ writes Rose. In West Africa, officials come with empty shopping bags to loot the bond locker. Captains dole out Marlboros because it works cheaper. Otherwise, vessels may be delayed by annoyed officials thus costing nothing less than $30,000 a day! Hearken to Chittranjan Dass, the walking encyclopaedia on Indian transport ecosystem: “Truly speaking, there are not as many trees by the side of our highways as there are the protruding hands of bribe seekers” (DasSpeak, p.23, 2014). Transporters (non-fleet owning tribe but thriving) and fleet owners (the worst hit stakeholders in the entire transport ecosystem) just given up fighting corruption on highways estimated to be around Rs.25,000 crore (US$4 approx) by Transparency International almost a decade ago. “Everyone is compromised – top to bottom: from minister to the bribecollector on the road. What’s the point? Pay them and proceed,” thus runs their argument. If so, how do they manage? Overloading is the answer. That’s besides the point. Corruption is omnipresent and omniscient. On sea and on roads. No exceptions. Period. From an Indian perspective, Rose features two Indians: Captain Jasprit Chawla and Engineer Chirag Bahri. Capt. Chawla in 2007 was put behind bars for 18 months for causing environmental damage on the Daesan coast of South Korea when despite his multiple alerts to the barges hurtling toward his Hebei Spirit, ferrying 250,000 tonnes of crude oil and the port authorities, oil spilled and he was punished. Bahri was a victim of Somalian piracy, held captive for several months and released ultimately. Bahri’s tale is grim. It was a question of life and death. Danger lurking everywhere. Every inch of road or ocean with no adequate support system. Seminars and workshops with ministers, bureaucrats and fleet owners/transporters, ship owners etc. on safeguarding the drivers of ships and trucks are fine. The ground reality is utter chaos and unmanageable. If at all, there is some semblance of serenity or order, it is sheer happenstance. Not planned. Rose pithily writes, “For most of history,

June 2015 LOGISTICS TIMES

What IRC India Chief Ashok Gupta is reading these days?

Watch Out for

July 2015 Issue the seaman’s life has been one of adventure, perhaps but also of weevils, awful food, terrible weather, press gangs, pirates, constantly possible drowning or injury. Sea life was underpaid, underfed, and so often lethal that Marco Polo thought a man who went to sea must be a man in despair.” The toughest and loneliest job, opines Rose. Not only for drivers of ships, but also for long haul truck drivers. Particularly in India, I wish to add. An unputdownable book. Must Read for logistics and supply chain professionals. Others too. — Ramesh Kumar

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ABRACADABRA RAMESH KUMAR

EDITORIAL ADVISOR supplychaindia@gmail.com

Believe me, crazy things are happening on the delivery front. If you think Amazon has a hand into it, you’re bang on. The Wall Street Journal reports that the global etail giant is running a pilot project to deliver your purchases into the trunk or dicky of your car at pre-fixed hours and pre-fixed locations. Of course, the car has to be Audi and internet-enabled... and buyers from Amazon need to be Prim e members. This pilot is being tested in Munich, Germany. Is Amazon taking “deliverables” too seriously? Perhaps. They are different from roadies. Never heard of them? Check out www.roadies.com

Going nuts, honestly!

I dunno about you, but am going nuts honestly. Six years ago, I never thought the

simplest and mundane task of ‘delivering’ something – not speech – would be so much ‘sexciting’. Hats off to these ecom-wallahs! The other day, I was reading Brad Templeton’s blog (www. templetons.com/brad) and stumbled upon his deliverbots stuff. He talks ... rather writes a great deal about moving cargo of all types at throwaway prices. I don’t want to rob him of his glorious piece. Visit his blog. McDee and sustainability! Wonder what McDonald has got to do with sustainability? A lot. Why only McDee? Every single item that is manufactured anywhere in the world destroys or recreates something from something else. How that raw material – be it food or any intangible item – is grown or made before parcelled out to the manufacturing site has a lot of bearing on the global environmental safety. That’s where McD is realizing that it needs to pay attention. It has pledged to end deforestation caused by production of commodities in its supply chain, focusing on beef, coffee, palm oil, poultry and packaging. It was the first by a global fast

food chain covering its whole supply chain and would push the industry to set new environmental standards. McDonald is promising not to buy from suppliers that clear primary forest and other areas with high conservation value, as well as peatlands. It also said human rights must be respected and conflicts over land use resolved through a balanced and transparent process. The multinational company said it would begin developing specific timebound targets for the raw materials it sources this year

supply chain operates,” said Francesca DeBiase, senior vice president of McDonald’s worldwide supply chain and sustainability.

and would help smallholders, farmers, plantation owners and suppliers to comply with its commitment. “Making this pledge is the right thing to do for our company, the planet and the communities in which our

yogi’ possibly punched the assailant and completed the task of delivering the pizza at the hospital and got admitted for his own treatment. A hard core and committed delivery man, no doubt. Salaam Josh! See you soon. Bye!

June 2015 LOGISTICS TIMES

Karma yogi! Am 100% sure, you don’t know this super kid: 25 year old Josh Lewis, a pizza delivery executive. A few weeks ago, he was stabbed and wounded on the road while he was on his way to deliver a thumb sucking pizza at the local hospital in Louisville, Kentucky. Bleeding and breathing hard, this ‘karma

RNI No. DELENG/2011/39329 Regd No.: DL(E)-20/5380/2014-16