SPOTLIGHT Air Cargo
INTERVIEW Ajay Chopra
PROFILE John Samuel
WAREHOUSING Lawrence Dean Shemesh
LogisticsTimes November 2010
EXCLUSIVE Indranil Sen on
FedEx - AFL Deal
Product Lifecycle Management
The Pertinent Factor LLOGISTICS LOG LO OG O GIIS IST ST S ICS CS TI TIMES MES July 2010 100
Noted domain experts underline the growing need of bringing in efficient product lifecycle management (PLM) processes which ultimately accrue benefits to all stakeholders in the value chain.
LOGISTICS TIMES July 2010
Logistics Times All about Transportation, Distribution & Infrastructure Volume 1: Issue No.7 * November 2010
Editor in Chief Raj Misra email@example.com Editor Ritwik Sinha firstname.lastname@example.org Consulting Editor Ramesh Kumar email@example.com Mumbai Bureau Rahul Kumar firstname.lastname@example.org Sub Editor Neha Richariya Photographer Anil Baral Design Consultant S. Athar Hussain Designer Kausar Syed Circulation & Distribution Kamruddin SaiďŹ Legal Advisor Rakesh Garg Editorial Advisory Board Paul Lim Founder & President, Supply Chain Asia Vinod Singhal Brady Family Professor of Operations Management, Georgia Institute of Technology, College of Management Kate Vitasek Faculty, Centre for Executive Education The University of Tennessee Prof. K S Pawar Nottingham University Business School Prof. Samir Srivastava Associate Professor, IIM-Lucknow Prof. Akhil Chandra Institute of Logistics & Aviation Mgt Sanjay Upendram Founder & Chairman, Amarthi Management Consulting Swaran Singh Soni Consultant (Oil Industry) Arif Siddiqui Chairman, Coign Consulting
Marketing & Sales Outthink Strategies Ph: 65177214, 26412476, 9818097385 Email: email@example.com Printer & Publisher Deepa Misra for
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Product Lifecycle Management The Pertinent Factor Edit Note News Brief Events
6 8 45
Indranil Sen on FedEx - AFL Deal
Air Cargo Challenges & Opportunities Interview: J Krishnan, President, (ACAAI) Column: Anil Khanna, MD Blue Dart Express Ltd Perspective: Sanjay Upendram, CEO Amarthi Consulting
Tales of a Supply Chain Road Warrior
Managing the life cycle The seventh edition of Logistics Times is in your hands and after the Supply Chain Special in August, once again we have endeavored to focus on a serious theme which underlines churnings on the front of attaining operational excellence. And if it is not happening in an all-pervasive manner right now, then at least there is a growing consciousness that the model should be adopted. The only difference is that while Supply Chain Special was quintessentially macro in approach and presentation, the fulcrum of this edition – Product Lifecycle Management (PLM) – gets a micro treatment. PLM, no doubt, is a concept which is now being increasingly talked about in the Indian logistics circle. The process has proved its efﬁcacy in many developed markets and in a nutshell underlines doing things scientiﬁcally and with a greater sense of precision. The clear objective is to ensure that lifecycle of a product is enhanced, products evolve in a ﬁne fettle at each stage so that it can accrue beneﬁts to producers as well as other linkage points down the chain. The inherent IT integration and taking in consideration issues like environment are other major components of this practice. Our cover story features a set of articles contributed by leading domain experts on PLM who deal not only with ‘whats’ and ‘whys’ of the concept but also with ‘hows’. Moving on to other spectrum of the logistics universe, I clearly remember that prior to the beginning of the slowdown in 2008, there was an euphoria of an unprecedented nature that air cargo business is set to skyrocket in the future. But slowdown pressures spoiled the party to a considerable extent and many players who were keen to kickstart their dedicated freighter operations had to bury their plans. However, since the latter part of 2009, some sense of positive equilibrium has begun to evolve with growth in volumes. As Air Cargo Agents Association of India (ACAAI) celebrates its annual convention in Bengaluru later this month, we turn spotlight on the present status of the business by bringing in three leading representatives of the industry presenting their take. Going by the their version, while there is no doubt on the growth potential front, there are still some serious ifs and buts on the issue of a better structured growth. So while the participants at the convention have all the reasons to smile, they will also have to deal with some serious pending issues in their bid to ensure a better business environment. Meanwhile, just before Diwali, Fedex made a dhamaka by announcing acquisition of some business units of AFL. Logistics Times immediately had an exclusive chat with Indranil Sen, MD (Marketing) to understand the real imports of the deal. And even as there are more ‘nays’ than ‘ayes’ as you would notice in his interview piece, the point that this global major has taken a decisive plunge in further consolidating in the Indian market would not be lost to anyone. Lastly, in our interview section, we feature Ajay Chopra, CEO of DIESL. This is a ﬁrm from Tata stable and on a small topline base, it has shown leaps and bounds growth trajectory in last three years. And according to Chopra, the company is well poised to reap the beneﬁts of tremendous economic opportunities which are emerging. DIESL certainly seems to be a very interesting story wherein a trading ﬁrm has taken a new avatar and much on the lines of aspirations of any Tata group company, it has already set its eyes on the market leadership position in the end-to-end solution segment. Waiting for your feedback. Ritwik Sinha firstname.lastname@example.org LOGISTICS TIMES May 2010
LOGISTICS TIMES May 2010
ABG Shipyard Bags $84 mn order
ABG Shipyard has announced receiving orders worth Rs 370 crore (US$84 million) from two customers in Qatar as well as Italy. The worth of order placed by f Qatar-based Halul Offshore is valued at $65 million. The second order, of US$17.5 million, is from an Italian shipping company, Marnavi Spa, which serves the world’s chemical-product and foodstuff markets, the company informed Bombay Stock Exchange (BSE) recently. ABG Shipyard has also stated that it has completed the acquisition of Western India Shipyard by acquiring about 61 per cent stake in the company and has got all regulatory approvals.
$22 mn acquisition by Allcargo Mumbai-based Allcargo Global Logistics recently announced acquisition and controlling stake in Hong Kong based companies engaged in NVOCC business. The acquisition is valued at $ 22 million and the move is believed to strengthen company’s expansion drive in the Non Vessel Owning Common Carrier (NVOCC) business. Speaking on the acquisition, Shashi Kiran Shetty, Chairman and Managing Director, Allcargo Global Logistics Ltd. said, “This acquisition will strengthen the company’s operating proﬁt by adding approximately USD 3.53 million on an annual basis. The company will save substantial cost on ship chartering and hiring thus supporting planning and execution of project cargo movements in an efﬁcient and effective manner. This further helps to capitalize on opportunities in the Indian sub-continent including coastal movement.” He further added “These companies are agents of ECU line within the global network. China is a leading international EXIM economy and large cargo volume generator. Through this acquisition we will further consolidate our position in the global LCL market.”
LOGISTICS TIMES November 2010
20 patrol vessels for CSL
Cochin Shipyard Limited (CSL) has recently signed a contract for construction of 20 Fast Patrol Vessels for Coast Guard. The deal is reported to be valued at Rs1,500 crore. This order, secured under very severe competition from Defence and Private yards, has taken the present order book position of the shipyard to 36 ships valued at approximately Rs 6,000 crore, a press release said. As per the contract, the ﬁrst ship would be delivered in 20 months time and one each would be delivered at an interval of every three months. CSL has reported commendable growth rate on all important parameters in 2009-10. Its proﬁt before tax surged by 34 per cent and shot up to Rs 331.25 crore as against Rs 247.63 crore in 2008-09. for the previous year. On the income front accruing out of ship building, the company had reported a total income of Rs 1,012 crore during the year. As against this, its topline had stood at Rs 986 crore in the previous ﬁscal. During the year 2009-10, the company had delivered ﬁve offshore support ships and six Offshore Support Vessels to its global clients.
24.65% surge in income
Blue Dart Express Limited has declared a surge of 24.65% in its income in the September quarter. Income from operations for the quarter ended September 30, 2010 was Rs 293.69 Crore, as compared to Rs 235.61 Crore for the quarter ended September, 2009. Proﬁt after tax for the quarter ended stood at Rs 20.98 Crore as compared to Rs 16.49 Crore in the corresponding quarter last year. Speaking on the occasion Anil Khanna, Managing Director, Blue Dart Express Ltd. said, “As always, our teams have worked very hard and I would like to thank our passionate and dedicated employees, our loyal customers and the governmental agencies and the industry bodies for their unstinted support and backing. Blue Dart is committed to provide customers world-class and benchmarked services, we are steadfast in our efforts to remain an employer of choice and be a trend-setter in the industry”
Bisignani against rash action IATA chief Giovanni Bisignani has warned the governments not to resort to rash actions to deal with the increasing security concerns following discovery of bombs in US bound ﬂight recently. “We have seen many cases where these have unintended consequences,” Bisignani told IATA’s aviation security conference in Frankfurt, Germany. “Industry is cooperating with government directives on targeted actions for Yemen-origin cargo. If there are any longer-term adjustments required, we must do so with all the facts in hand with measures targeted to meet speciﬁc tasks.” Bisignani maintained that following the discovery of the bombs, cargo security has once again become the topmost agenda for IATA. He, however, also emphasized to look into the regulations to screen cargo planes in world’s leading countries. Speaking at the same conference, John Pistole, head of the U.S. Transportation Security Administration, assured that recent incidents would not affect business. “Security cannot bring business to a standstill,” he asserted.
APL expands intra-Asia service
Schipol-Changi sign MoU
Amsterdam Airport Schiphol and Changi Airport have recently signed a memorandum of understanding (MOU) on e-freight: paperless air cargo. According to the MOU, both airports will facilitate and promote to their local supply chain the use and further development of paperless air cargo transport, thus creating a paperless trade lane between them. Also they agreed to exchange e-freight knowledge, expertise and explore the possibilities of joint research. The document was signed at the 25th International Air Cargo Forum & Exposition (ACF 2010) in Amsterdam RAI.
Nordics division for Toll
APL has announced to launch weekly intra-Asia service around middle of November which would connect China, Indonesia, Malaysia, Singapore and Thailand. APL will operate its China Indonesia Straits Service with four container ships. These ships would have capacity of 3,000 20-foot equivalent units each. The proposed new line of service in ﬁve Asian countries is slated to strengthen APL’s strength in the continent. “We’re addressing the ever-increasing requirement for direct-call service to key Asian growth markets,” Jason Wong, vice president of APL’s Intra-Asia Trade commented. The company is maintaining that the service covering the link between China to Jakarta and Surabaya would be fastest in the region. Under the new service, the ports which would be covered are: Shanghai (Waigaoqiao), Ningbo, Xiamen, Chiwan, Singapore, Jakarta, Surabaya, Jakarta, Port Klang (Westport), Singapore, Laem Chabang and Shanghai.
Toll Global Forwarding (TGF) has established a new Nordics division, with the opening of ofﬁces in Aarhus, Copenhagen (headquarters) and Helsinki.TGF also plans to open in Norway within the next few months, and to penetrate the neighbouring Baltic States. Already the new division employs 50, and head count will eventually reach some 150-175 staff, excluding warehouse personnel and drivers. Toll’s new Nordic operations will initially centre on air- and ocean forwarding, along with project forwarding. Geographically, Toll Nordics will particularly target business to and from Asia, the Americas and the Middle East. TGF’s existing operation in Sweden will be integrated into the expanded Nordics network, where it will beneﬁt from increased buying power and economies of scale.
LOGISTICS TIMES November 2010
‘This is our second acquisition in India. Not first’ Hardly a few hours after the global parcel giant FedEx revealed about its acquisition of AFL India’s major businesses, Ramesh Kumar buttonholed Indranil Sen, Managing Director-Marketing at FedEX India’s Bangalore headquarters, to know more about the deal. Excerpts. Congrats, Indranil. limelight! Enjoying?
reason we did not buy this unit.
You have accommodated AFL owner Cyrus Guzdar as Advisor. Is it temporary or permanent?
Hardly in limelight.
At last you have got a big domestic company in your kitty...
He will be the Executive Advisor on the company. I am not able to comment on the contract with him.
Well, actually we acquired a domestic company in 2007: Prakash Airfreight Express. Now, buying AFL business is the second acquisition in India.
Three years ago, you desperately tried to acquire one of the big Indian companies.For instance, you tried Safexpress, but failed. Why it is important for FedEx to buy out a domestic entity? The reason for acquiring AFL is essentially around the fact that what we are getting from is in the form of domestic distribution logistic services such as warehousing etc. which we did not have. They have a fairly large ground distribution. It adds to our strength. And of course their synergy with air express business. It is a combination of these things which is why we chose to acquire them.
When did the negotiations begin with AFL?
Any more inductions from AFL at senior management level?
Beyond that, there is nothing much to say on that.
I know you will not respond to this question. Nevertheless, here it is. What price you paid?
You will be buying time to acquaint yourself with AFL ops and then slowly infuse your own team?
You know the answer. We will not be commenting on this issue. (Laughs)
Yes. The divisions we bought from AFL, we bought with their people.
It is a total buy out or majority stake?
How long the integration is going to take? FedEx has a multinational mindselt and AFL is a domestic firm. Culturally different kettle of entities.
Basically, we acquired two divisions of AFL. We have not bought the entire company. We acquired their express and logistics and distribution divisions. We also bought out their subsidiary Unifreight India Limited.
Sorry. I cannot comment on that.
How tumultuous or challenging was the task? Honestly I have nothing to comment upon except that this kind of acquisitions have their own processes. They have to be complied with. We went through these processes as demanded. LOGISTICS TIMES November 2010
We are acquiring their operating businesses. It will take time for us to see how to integrate these two organisations. For the moment, there is no change in the management level.
What you did not buy from AFL and why? AFL has a freight forwarding business. We did not buy that. They also have a cartridge reﬁlling business which we did not acquire. We already have an existing freight forwarding business in India with deep street network. That may be the
Let me put it this way. There is a lot of work to be done. This will get completed earliest by February 2011. We will put together a plan. It is too early to comment on this aspect.
Can you put a number on the size of people to be absorbed from AFL? Sorry. We don’t have the exact number of people (to be absorbed).
When this kind of marriages take place, there will be challenges. Do you agree or not?
All acquisitions and integrations have challenges. I am not denying that. A few years ago, we did acquire an Indian company and therefore, we have some experience in this regard. I am sure we will be able to overcome any challenges during integration.
DHL bought Blue Dart. Now you have taken out AFL one of the oldest LSPs. Will this marriage consummate all FedEx’s India dreams to grow at a faster pace? At FedEx, we have a strategy for India. That is why we acquired two companies here so far. Obviously India is an important market for FedEx. We have been consistently investing in this market over several years. We were the ﬁrst, you might know, to start dedicated freighters from India. We were also the pioneer to start Bangalore as a gateway from India in addition to Bombay and Delhi. We have acquired a domestic company in 2007. The point I am making is India is certainly an important market for FedEx and a market where we are deﬁnitely looking for growth. The latest acquisition is part of that long term strategy.
Any more inorganic growth plans in the pipeline? We don’t talk about our plans on going forward, unfortunately.
What your focus going to be in the next 18 months – say, till 2012 March? As I have said, we don’t share our future concrete plans. Nevertheless, I will say our focus will be on improving our services and increase the portfolio of products we would like to offer to our customers and ensuring highest quality of service as our customers are used to. These will continue to be our focus.
Can’t you have done without the buyout of any Indian company in this sphere? Why it is important? Well, acquisitions is one aspect.
Cyrus Guzdar Chairman of AFL (L) and Hamdi Osman Senior Vice President Operations FedEx Express Middle East Africa and Indian sub-continent
Founded in 1945, AFL Pvt. Ltd. has been a recognized leader in the transportation and logistics industry in India. A privately held company, the AFL business offerings include a comprehensive range of distribution and logistics services through a well-established network across India. Specifically, this acquisition includes the purchase of: * AFL Logistics and Distribution, which consists of a wide range of products and services, including supply chain management, warehousing, and a ground distribution network that provides day-definite ground transportation for small packages and heavyweight shipments through more than 200 daily scheduled routes; and * AFL WiZ Express, which offers express services through more than 160 Express Service Centers servicing more than five thousand zip codes across 144 cities in India. Companies go in for acquisitions because it is believed that this will add to our existing strength in terms of people and what they have been offering on ground. One goes for acquisitions when one is conﬁdent that these synergies will work.
is one of the best economies in the world now. Growth driven by domestic consumption means a lot for domestic transportation. Therefore, it is a market to be in which we believe will grow. We are extremely bullish about India. Exports have been very positive.
What kind of management changes one can expect at FedEx in the near future?
How ready is FedEx to ride on the post-GST situation?
What is FedEx’s take on the Indian Economy? For several reasons, India is an important market for us. It has a huge domestic market which accounts for a huge part of our GDP growth. It
We have been waiting for the rules and regulations to come. It is going to be an important landmark. This would ease the movement of goods across borders. We have been observing carefully and planning for it. We will be ready whenever it comes through. Also See LAST PAGE: AFL Goes Global LOGISTICS TIMES November 2010
SPOTLIGHT: AIR CARGO
“No doubt on growth prospects” According to J Krishnan, President, Air Cargo Agents Association of India (ACAAI), the growth prospects in air cargo business are looking rosy again. In a candid chat with Ritwik Sinha, he, however, also strongly points at serious hurdles which are impeding the growth of air freight business in the country to attain the scale it is capable of. Excerpts from the interview: Prior to the beginning of the extreme slowdown pressure in 2008, everything looked hunky dory for the air cargo business in the country. But then we all know how the sentiments dipped. How would you explain the trends which have evolved in the air cargo business in past two years? I would say that the downturn had cut deeply in the airfreight logistics. Industry witnessed sharp scaling down on capacities and slump in freight rates to unrealistic levels as markets shrunk dramatically and cost cutting measures directly impacted airfreight. Many freighters were removed from scheduled operation. Many exporters defaulted on committed tonnages leading to annulment of long term rate contracts. Fortunately, the pain has not been extended to a much longer duration as the past year has seen tonnages creep up ﬁrmly and the reduced capacities also helped carriers to ﬁrm up the rates to off- set the deep losses suffered. The panic reaction had seen inventory levels dry up in most manufacturing units. But now, there is an urgency to replenish
LOGISTICS TIMES November 2010
the inventories to healthy levels and this has aided in the growth of air freight.
Again I will draw your attention to early 2008 scenario. About half a dozen players had procured license to operate dedicated freight service. But hardly any one of them has managed to launch the service successfully. Can we solely put the blame to strong slowdown scenario or there are other reasons involved too? Forecasts pay a dominant role in inviting investment in any industry and if one were to revist the forecasts of yesteryearswhat was projected was a never ending party. Many projections had earmarked continuous y-o-y growth at least until 2020 in the air cargo business. This spurred many to believe that exciting opportunities were available. However, any successful freight operation is based on reasonable load availability on both directions. The economic meltdown witnessed the disappearance of markets and directional imbalances was accentuated leading
to a no win situation. This prompted many start ups to defer further investments and progress to launch dedicated air freight operations. The lenders to these stat ups were also reluctant to believe the original success scenario painted and hence became very tight ﬁsted.
The growth in air cargo business is primarily coming through bellyspace route. Hence one strong theory is that the growth will always remain limited and will not skyrocket as per the potential of the business. What is your take on it?
A very dry and mildewed loaf of bread becomes a gastronomical delight to a starving man. Our euphoria over enhanced infrastructure is very similar. Lack of infrastructure is, in fact, a tragic point in India’s growth story. Things are achieved inspite of and not because of a supportive infrastructure. Horrendous waiting times at major airports, restricted working hours by regulators, indifferent approach to swiftly enhance infrastructure or even to productively use the available infrastructure leaves one very disheartened.
New passenger routes are being opened up and frequencies on existing routes are being enhanced and hence the belly space cargo route is also growing. However, the market for dedicated freighter operations will always remain vibrant and here charters are a very meaningful solution for surges to speciﬁc markets. With increasing sophistication in supply chains where air cargo is a planned and integral component, the need for freighters cannot be dispensed with. Committed tonnages at short notice are the solution a freighter offers which bellyhold can never match. As products move up in the value chain they become more airfreightable and when they are required in large volumes, freight capacity needs to be deployed to address this demand. Hence freighters will gain importance even though belly hold space will account for more than 50 percent of all freight movements.
One positive trend, however, which has emerged strongly in past couple of years is the strong emphasis on cargo operations by the successful Indian LCCs as an add on. What is your observation? As stated earlier the emerging sophistication in supply chains –be it domestic or international- will demand a large cargo capacity on a scheduled basis. India offers tremendous potential for air cargo as we integrate the remotest areas thousands of miles afar with the economic hubs within the nation. Here, government policy is also a major catalyst to spur domestic economic grown and GST will be a major step in that direction.
At one point in time, there were a lot of discussions as how dedicated cargo villages would become imperative to respond to the growth scenario in the air cargo business. But now we hardly hear anything about those concepts which have proved their efficacy in many developed markets in the world. What has gone wrong? The world has changed since 9/11 and security has emerged as a very critical issues issue in transportation. The off airport premises as available in India today falls short in meeting various security parameters and we are yet to successfully sterile chain of operations. Human intervention by various regulators is a huge dampener when physical veriﬁcation is insisted upon and security stands compromised. The unrealistically high cost being loaded in the name of security is a major factor inhibiting such
We are gradually noticing the upgradation of airport infrastructure in the country. But are you satisfied with the kind of changes they are inducing to improve cargo operations?
A major problem for air cargo business has been that it is generally considered to be playing second fiddle to the passenger operations in the country. Do you feel that the present economic boom spell (8-9 percent GDP growth) which is slated to continue for sometime would change the scenario and that cargo business would assume its own independent identity? A powerful and well- networked national carrier is sine qua non of any major exporting nations’ success. They form the back bone to the nations’ economic interest. Until we see the emergence of a dominant Indian cargo capacity being infused into the market, the above proposition will always remain a desired destination to be reached.
If I ask you to cite three key challenges or problems faced by air cargo fraternity, what would be your response? Three key challenges in my opinion are: infrastructure, archaic regulations and lack of skilled professions manning the business.
How do you envisage air cargo business unfolding in next two-three years? Can we expect more dedicated freight operators to join the fray? There is no doubt on growth prospects. Growth is a given as the nation enters the big league. The demography will demand greater consumption. And the local market is set to explode. Air Freight will assume increasing dominance in addressing the demand and there would be a need to deploy more freighters.
Finally, what would be the salient features of your convention this time? The theme of this convention, “Air Logistics -Industry Resurgence”, aptly sums up the mood of the industry. This convention will attempt to learn right lessons from past hurdles to facilitate emergence of a more professional and dedicated class of forwarders. LOGISTICS TIMES November 2010
SPOTLIGHT: AIR CARGO
Logistics capability or lack of it, in today’s economy drives success or failure. In India, Express Logistics is gaining momentum, especially post the globalization wave of the early 1990s, says Anil Khanna, Managing Director, Blue Dart Express Ltd.
Express: Gaining Momentum A no-brainer but very strongly evident – businesses worldwide supported by logistics efﬁciencies, have been more successful and has exhibited superior competitive balance sheets, providing consumers better products/services, yet adding value to its investors. A unique combo - globalization coupled with liberalization, has triggered off immense competition and has ensured that both private and public ﬁrms to commit themselves to make available the right material in the right condition, at the right time and place, at the lowest cost to their customers. Over the past couple of years, the logistics sector in India has intensiﬁed, they say, every dark cloud has a silver lining. When the global slowdown hit business in India, the logistics sector was ﬁrst to get affected. The small players were the ﬁrst to feel the pinch, as the margins were under pressure. Some were even forced to close operations, while others sold out to larger logistics players. The ﬂip side is that the circumstantial consolidation had its own beneﬁts, though, like reducing inefﬁciencies in operations and increasing innovative offerings. Blue Dart Express Ltd, South Asia’s number one air and integrated transportation, distribution and logistics company was amongst the few who surmounted every obstacles during the slowdown. Blue Dart has India’s most extensive domestic network covering more than 25,498 locations and as part of the DHL Group (DHL Express, DHL Global Forwarding & DHL Supply Chain) services more than 220 countries and territories worldwide. Over the years, Blue Dart, with ﬁrm focus on its vision has not just held its reins as the domestic leader; but in the process has actually transformed itself into an innovative, agile, ﬂexible and customer centric organization to meet the rising demands of customers across the length and breadth of the country. No wonder, Blue Dart fondly calls it the ‘Blue Dart Country’, validated by its strong and intensive infrastructure, technology, market leading reach which is aptly complimented by customized solutions targeted at speciﬁc needs. Undoubtedly, Blue Dart, even during the downturn, has worked hard to pursue its pioneering spirit while winning the trust of its internal and external customers alike, the proof-points being numerous prestigious awards and recognitions, and most importantly the immense customer loyalty won over the years.
India: Immense Opportunities for Express Unlike many leading economies, the growth story in India is fuelled primarily by domestic consumption and not by foreign LOGISTICS TIMES November 2010
trade. The good news is that the Indian economy expected to register growth rates of 8-9% (2010-11), while the Indian express industry is expected to register double-digit growths - a strong indicator of the immense potential the logistics industry has in the country. Today, the domestic organized air express market is pegged at around Rs. 1500 Cr, which grew at a CAGR of 7-8%, while the domestic organized ground express market is pegged at around Rs. 1700 Cr, which grew at a CAGR of 14-15% in the last 5 years (Source – AT Kearney). The Indian express industry supports industries like pharmaceuticals, telecommunication, electronics, IT, banking, auto-components, textiles, retail, apparel and gems and jewellery to provide value-added, integrated time-bound, door-to-door delivery of documents, parcels and merchandise good. In an environment of intense competiveness, the third party logistics (3PL) service provider will play a vital role for the companies operating in the various industries and concentrate on their core competencies of manufacturing and marketing. With India being recognized as an outsourcing destination, manufacturing sectors like textiles, automobiles and pharmaceuticals are likely to witness increased activities in the medium to long term. In addition, with the opening up of banking, insurance, telecom and retail sectors, there will be a further boost to the demand for value added express services in India, as these are the major user industries. Incidentally, the Civil Aviation has been one of the fastest growing arms of India’s transport infrastructure. In the wake of global competitiveness, all major global express players have established their presence in India in this segment. In order to facilitate trade, many express companies and their councils have taken up dedicated space in airports for cargo clearance, as well.
Opportunities in Shortfalls Due to the various inefﬁciencies, logistics cost is much higher in India as compared to most developed countries. The logistics industry contributes ~13% to India’s GDP as against ~ 8% in developed countries. Going by the nation-wide inadequacies in infrastructure which have a direct bearing on logistics, the government current focus is on developing roads and infrastructure, which will help reduce logistics cost. There is tremendous potential and promise in logistics, which is why it was one of the top ﬁve sectors that attracted maximum
investments last year, inspite of infrastructure shortfall. From April 2011, if the GST (Goods and Services Tax) is introduced for logistics it will be another shot in the arms and can also fast-forward India’s warehousing segment and lead to far-reaching changes in the supply chain models of many companies. GST can help in cutting down multiple taxes which will allow manufacturers to manage distribution centres across India at select strategic locations, rather than spreading their resources thin at multiple locations as they currently do – simply to save on CST (Central Sales Tax). Since GST is a potential enabler to transform the Indian business landscape by replacing all indirect taxes, eliminate exemptions to weed out multiple layers of taxation, and follow the principle of destination rather than origin. Logistics consolidation will receive a further ﬁllip as Free Trading Warehousing Zones (FTWZ) become operational in India and make their presence felt across different geographies. In fact, GST and FTWZs will break down parochial barriers and make large-scale operations more viable and cost effective.
Gaining Momentum The Express Industry is all set to reach new heights with advancement of technology, infrastructure and commitment from private players in this sector, the demand for express services is going up every passing year. . The opening up of the Indian economy to foreign investments is expected to attract more companies into the country, thereby adding momentum to market growth. The Government has taken up the issue of e-governance and infrastructure project seriously, and playing its part by drawing up robust plans for developing and upgrading both air and ground, by modernising airport, developing highways and roads
etc. Continued investment in this project through Public Private Partnership (PPP) will provide the much needed direction and sustained development in India. PPP in infrastructural projects and other such areas will accelerate development and propel the express industry to perform better. Organizations like Blue Dart are poised for more robust growth adequately supplemented by network, reach, technology, infrastructure, products and people. Blue Dart has aptly focused on cost rationalization, innovative and customized solutions for its customers, thus gearing up to be the dominant market force for the coming years. As always, Blue Dart had taken bold and smart steps to beat the downturn, which have gradually shaped into new avenues of growth for the company, in the backdrop of numerous opportunities unfolding in an upbeat economy. In testimony to the company’s rising graph within the public consciousness, Blue Dart has won popular awards year after year. In April, the company was conferred the 22nd CFBP Jamnalal Bajaj Fair Business Practices Award - 2010 in the Service Enterprises (Medium) category. Blue Dart was also conferred the ‘Consumer Superbrand’ status in 2010, for the ﬁfth consecutive year by the Superbrands Council. In June this year, Blue Dart was voted as one of India’s most trusted brands in the ‘Airfreight/Courier Service’ category for the ﬁfth consecutive year, at the Annual Trusted Brands Awards 2010 organized by Reader’s Digest. Blue Dart has also been recognized as one of India’s Best Companies to Work For 2010 in a study by Economic Times and Great Place to Work® Institute, India. Recently, Blue Dart has been named a Power Brand in India, as well. Therefore, it will not be incorrect to conclude that Blue Dart, too, is gaining momentum!
LOGISTICS TIMES November 2010
SPOTLIGHT: AIR CARGO
Air cargo is becoming a vital dimension of India’s growing trade. It is a crucial mode of transport for India’s international trade especially for products with small size and high value or value addition. Compared to other modes of transportation, air cargo is still a small percentage, writes Sanjay Upendram, CEO, Amarthi Consulting.
Infrastructure not coming up at the desired pace The road trafﬁc is estimated to be 2,466 MT in 2007 and is expected to grow to about 3700 MT by 2013. The rail freight has grown from 666.51 MT in 2006 to about 727.75 MT in 2007 and likely to be 1,100 MT by 2012. The trafﬁc at the sea ports is also growing at a signiﬁcant pace from about 458.21 MT to a projected growth of 961.55 MT by 2013-14. The air cargo is a smaller portion of the overall freight trafﬁc, however it has grown from about 1.2 MT in 2004-05 to about 1.7 MT in 200809 and is further expected to grow in the future with growing international trade. Around 85-90% of the total air cargo is currently handled by ﬁve major airports (Bangalore, Chennai, Delhi, Kolkata and Mumbai). There have been some improvements in the infrastructure to handle cargo at airports but there are numerous bottlenecks towards the efﬁcient handling of air cargo. Dwell time for import and export cargo at Indian airports is 3 to 5 days as compared to an average of 6 to 12 hours in other leading international airports. Some of the major issues and challenges currently plaguing the Aviation sector operations are: High Fuel Prices: It has been observed that the Airlines have reported losses, in spite of the 20-25% y-o-y growth in passenger and cargo. The main reason being the high costs of aviation turbine fuel (ATF), ATF prices in India are higher
LOGISTICS TIMES November 2010
than the international market. The ATF price accounts for nearly 45%-50% of the operational costs of the Indian Airline industry as against the global average of 20-25%. Congestion: The capacity constraints in Indian Airports are leading to Congestion at major airports like Mumbai and Delhi. Congestion leads to a considerable amount of fuel wastage, it is estimated that if a ﬂight does not get landing clearance and hover in the sky for 30 mins, the aero plane consumes 20-30% extra fuel thereby escalating the operational cost of the airline. It is estimated that INR 30-40 Lakhs worth of fuel is currently being wasted due to delay in landing clearance at the airports. High Airport Charges: The airport charges which include Route Navigation Facility Charges (RNFC), landing and parking charges, terminal navigation landing charges, housing charges etc are very high in India as compared to other Asian counterparts. Currently it lies anywhere between INR 20,000 to 30,000 per landing, which is very high. India is second highest in terms of airport charges as compared to other Asian countries. Technical Manpower Shortage: The Indian Civil Aviation Sector is facing acute technical manpower shortage, which includes mainly the pilots, air craft maintenance engineers and air trafﬁc controllers. The demand for the technical man-
power is bound to rise with increasing number of ﬂights and the addition of new airports. There is a shortage of ﬂying instructors due to unattractiveness of the profession, which is ultimately leading to shortage of pilots. Land acquisition: The land acquisition for development of airports has been one of the main challenges which the government is facing. In many cases, even though the government owns the land, there have been difﬁculties in using it for airport development typically due to resistance from the unauthorized slums who encroached upon it. Poor maintenance of land records has been another hindrance towards the acquisition of land. Closure of Old Airports: The old airports at HAL, Bengaluru and at Begumpet, Hyderabad have been nonoperational since the inception of new private air ports, BIAL and HIAL. The old infrastructure is wasted and is not utilized. These issues undermine the competitiveness of Indian air cargo industry and the trade potential; there is immediate necessity to address the issues. The amount of air cargo is growing steadily, according to AAI estimates by 2012 the total air cargo trafﬁc is expected to reach 2.68 million tonnes, but the infrastructure related to cargo handling and evacuation is not growing at the same pace. There is a greater need to efﬁciently utilize the existing infrastructure, space and equipment and at the same time implement the planned infrastructure in a timely manner. In addition, a collaborative effort is needed between all the stake holders concerned in order to establish world class air cargo networks system for India. The following key infrastructural reforms and policies are critical for India’s continued growth in the aviation sector: Uniformity in taxes on ATF fuel: Government should take necessary measures to remove the disparity in prices of ATF in various states. There need to be a uniform ATF price across all states. The situation can be addressed by creating an environment of free and fair market competition in fuel
supply. It is critical and urgent that ATF be declared as a GOOD. Congestion: The government authorities and airport operators should implement suitable technology that would result in effective air trafﬁc management. There is a need to add extra parking bays and taxiways to mitigate the congestion. High Airport Charges: Low non-aeronautical revenue is forcing the airports to collect high airport charges airline operators. Airports need to tap the non-aeronautical revenue in order to bring down the airport charges levied on airline operators. Manpower Shortages: In case of pilots, this issue can be addressed by building world-class training institutes and encouraging tie ups with various airlines. Appropriate measures are needed to be taken in order to make the profession of ﬂying instructor more attractive. Setting up of Aircraft Maintenance Engineering institutes or incorporating such courses in premier colleges across the country can address the shortage of Air craft maintenance engineers. It is of importance that ﬁscal incentives be provided for setting up such institutions. Land Acquisition: There needs to be suitable provisions for facilitating smooth acquisition of land for airport development or extension without undermining the stake holders. The land should be acquired in advance before any project starts in order to reduce the delays in the project implementation. Government would be required to incorporate suitable provisions facilitating a smooth land acquisition process without undermining any of the stakeholders concerned. The land should preferably be acquired in advance by the government. Usage of Old Airports: The closed airport space can be used as maintenance shed for maintenance and repair of aircrafts, they can also be used for aircraft parking and air taxi service. This will considerably bring down the congestion at the existing metro airports. The closed airports can also be used as secondary/low cost airports for LCC aircrafts thereby ensuring fuel efﬁciencies and quick turnaround time. LOGISTICS TIMES November 2010
Pro Logistics India in JV agreement with European Logistics Giant Rhenus Pro Logistics India, a Western Arya Group company, has entered into a joint venture with 2.7 billion Germany Head Quartered logistics giant, Rhenus (part of the 7.1 billion conglomerate Rethmann AG & Co.). Rhenus AG & Co. KG signed an agreement with the Pro-Log Group to acquire shareholding in the group. The Joint Venture Company will be called “Rhenus ProLog Logistics Limited (RPLL).” With this, Pro Log, a reckoning force in logistics in Asian markets is poised to enhance presence across Europe as well. This joint venture will
600 employees at 19 business locations. Following this acquisition, Rhenus will have its own ofﬁces for business operations at 32 locations in Asia. Uwe Oemmelen, a member of the Rhenus Board, said, “In the past we did not have our own independent services in the air, ocean and distribution divisions in south and south-east Asia. Through the ProLog Group we will also obtain expertise in the third-party logistics ﬁeld in Asia. As a result, we will be able to offer our customers more comprehensive services in South and South East Asia. Rhenus
of our Quality Management Systems.” The Pro-Log Group primarily operates in south and south-east Asia and has its own ofﬁces in Singapore, the Philippines, Malaysia, Thailand and India. The company has been a partner for Rhenus Freight Logistics, particularly in the air and ocean divisions, in the past. Pro-Log has been handling signiﬁcant transportation volumes between Europe and south/ south-east Asia for some years. Pro-Log provides services in the ﬁelds of Innovative Logistics; Freight delivery; customs brokerage; cargo insurance;
enable Rhenus to strengthen its presence in Asia to a signiﬁcant degree and will also help develop the market in this region for the Rhenus brand. Pro-Log’s mission has been to provide the highest quality level of services, cost efﬁciency and productivity to customers and global partners, while maintaining and building long lasting relationships. By taking a holding in the Pro-Log Group, the regional turnover for Rhenus will rise by approx. US $ 50 million and this sum will be generated by almost
will fully take over the Pro-Log business locations in China and Hong Kong, and will have a much stronger Rhenus Logistics Asia-Paciﬁc Ltd as a result. Vivek Arya, Managing Director, Pro Logistics (I) Ltd, said, “Our aim is to be a leading competitive logistics company; setting the industry standards for service, efﬁciency, and, productivity. With this joint venture, we are able to expand our presence in European sub-continent and we will be able to achieve the goals set out through our commitment and compliance
third party logistics; Industrial Project Management; Government contracts; and Warehousing / Distribution. The Rhenus Group is one of Europe’s leading logistics services providers with an annual turnover amounting to EUR 2.7 billion. Rhenus employs 16,300 people at more than 290 business locations worldwide. The Rhenus business areas Contract Logistics, Freight Logistics, Port Logistics and Public Transport - manage complex supply chains and provide a wealth of innovative value-added services.
LOGISTICS TIMES November 2010
LOGISTICS TIMES October 2010
Ajay Chopra, CEO, DIESL
LOGISTICS TIMES November 2010
Please take me briefly to journey of this company so far, especially the initial years when the company was operating as a trading firm. It’s a very interesting story to understand how organizations evolve and take up a completely different role. The company was set up in 2003. It’s a wholly owned unit of Tata group wherein Tata Industries and Tata International hold 50 percent each. As you rightly said, the initial purpose in the creation of this company was entirely different. The initial purpose was to create a trading arm which would support Tata’s telecom venture. And that’s what we did in the ﬁrst three years. We only did trading in telecom products. We used to import handsets, modems, data card, accessories and sell them all across the country. The challenge was not in importing because we were doing it from four-ﬁve sources but to distribute
it later across the country. There were so many players in telecom and our group wanted to do it differently. So they posed different challenges to us. They said we want products to reach within some set SLAs and KPIs and those kind of things. Within three years time, when we had matched our footsteps with Tatas and spread all across the country and created presence every where, then we did an internal brainstorming and asked ourselves what kind of organization are we and what are our skill sets? And what do we want to be in the future? And it came out that while we claimed to be a trading organization, we were not actually doing the trading even at that time. Because the buy decision and sell decision both were taken by the end users. So if I was trading for Tatas, then they were telling me buy this product and sell it in a particular manner. We were
actually executing only what we were asked to do. But in the process what we had developed was strong execution skills in the area of distribution – order execution, credit policy execution, last mile deliveries, creating innovative solutions for deliveries and supply chain management, etc.
So as you realized that you have picked up expertise in distribution, you decided to take a shot at much larger logistics play. Tell me, what kind of strategy you had adopted initially to build up the clientele base? And how has the scene unfolded since then? Yes, we strongly felt that this is an area where we have developed expertise and therefore let’s create a logistics company which will give end-to-end logistics solutions. That is how Drive India
“ We want to become “
market leader by
From a pure trading firm to complete logistics solutions provider company recording 100 percent topline growth consecutively for three years, Drive India Enterprises Solutions (DIESL), a Tata group company, has surprised everyone by its swift moves. In a free- wheeling interview with Ritwik Sinha, CEO of DIESL Ajay Chopra points out the reasons which are acting as catalysts for the rapid growth of the company. He also underlines that larger vision of assuming the market leadership position. Excerpts: LOGISTICS TIMES November 2010
“We are growing at much faster pace than the industry growth rate. Industry is growing by 8-9 percent, organized players are growing by 14-15 percent but our growth trajectory is much higher.” Enterprise Solutions (DIESL) was formed around 2006 end. Initially we started with Tata group companies only. But we work with over 80 customers today and most of them are non-Tata companies. Only about 14 odd companies are from Tata group but most of our outside customers are industry leaders. We work with companies like Colgate, Phillips, Sony, Whirlpool, Bharti, Aircel, etc. And within Tata group we work with Tata Motors, Tata Sky, Tata Indicom, Voltas, Rallis, etc. We have been growing by over 100 percent every year for the last three years. There was a blip in our economy in 2008, but even in thar year we grew by 100 percent. Last year, we grew by 125 percent. So we have been continuously growing by this hefty margin in the logistics space. Even now the trading business continues but our focus has shifted to logistics operations. This year, we may not grow by 100 percent as it is not possible to continuously repeat that feat, but we will deﬁnitely grow by over 50 percent. We are growing at much faster pace than the industry growth rate. Industry is growing by 8-9 percent, organized players are growing by 14-15 percent but our growth trajectory is much higher.
As you are saying that you have outpaced the industry, I would like to understand what has really worked for you? Our strength lies in the fact that we have created an excellent distribution network. In terms of warehousing infrastructure, we have about 175 units and we are number one in that. We deliver in over 7000 cities today. We have delivery time which is less than 24 hours across the country for 90 percent of the orders which we execute. We work with sectors like telecom, LOGISTICS TIMES November 2010
FMCG, consumer durables, chemical, retail, and now we are approaching areas like project logistics and packaging. They will come in our services basket in a major way in next three-four months. We have a team of over 3000 people across the country. Efﬁcient technology support aligned with customers’ expectations has also played a major role in our growth. We have seriously looked at and studied what exactly is the demand of Indian customers? And what is that critical gap between what he wants and what is being delivered to him? What we discovered was the biggest requirement of customers is assurance. A customer mainly wants permanence and consistency in services quality. And we quickly moulded our services in that direction. You see, the assurance factor basically revolves around your dependence on people or technology. We quickly started moving from a people dependent organization to an organization which is process and technology driven. So in the last few years, and especially in last one year, we have launched three products to bring this change. One of them is called Wimac which is a warehouse management product, as good a product as used anywhere in the world. Another product is Connect which is a distribution management product. This was bought from Oracle and we got it customized with TCS to suit Indian conditions. Another product which we have unveiled is Connect International which is the exim product, again bought from Oracle and customized by TCS. The whole idea was to give the customer complete visibility – from the beginning to the end point. These products have been widely appreciated by our customers. So we have put these superior systems in place and
now approaching our customers more conﬁdently.
Much is being talked about mega-scale logistics hubs which DIESL would be establishing in strategic locations. Please share some details on that. We are continuously evolving our growth strategy. In the beginning, the strategy was to be present in as many places as possible and have a very wide network. So we created them. But now in next 1824 months, we would be coming up with nine hubs across the country. Five in the ﬁrst phase – four would be in the typical preferred locations of Delhi, Mumbai, Chennai and Kolkata. Fifth one would be in Guwahati as we have a major operation in the north east and Guwahati is the gateway.
Some recent media reports suggest you are going slow on these hubs as you would like to see how business scene evolves after the implementation of GST? No, GST would not make a difference. We are not waiting for GST to come in. This decision is again something which has recently evolved. Yes, in the beginning our warehouse infrastructure expansion policy was linked with GST roll out. But in the last one year, whatever we have seen in this industry, and the way we see this industry grow even otherwise there is enough market for large hubs. Customers want large, strategically located, wellequipped and highly efﬁcient logistics hubs to move their products. What will happen is, even if GST gets delayed by say two years in the worst case scenario, I believe these hubs will still get the
customers. So, we have delinked our hub roll out plan with GST implementation because Indian business is large enough now to be able to absorb these kinds of hubs. Yes, the spokes would continue and we would eventually have hub and spoke model. In the next 12-18 months, ﬁve hubs would come up. We have already identiﬁed locations in Delhi, Chennai and more or less zeroed on the site in Mumbai. Kolkatta is still being identiﬁed and so is Guwahati.
Apart from these five, you are also talking of four more hubs. Can you tell the pockets where these units are likely to come up? Secondly, what is going to be their size? We believe that the northern region will have one more unit apart from Delhi/ NCR. Then we are typically looking to have a hub between Nagpur, Indore and Nasik. We are looking for location options to cater this belt. Another one we are looking at is somewhere between Bangalore and Hyderabad in South. Average size of these hubs would be 2,50,000 sq feet in the ﬁrst phase. What we are planning is that we would have enough space and capability there to grow them to 4,00,000. While it may not happen in Guwahati, most of the others would start with 2,50,000 square feet space and then add more area to it.
55 percent of your revenue is coming from Tata group companies. But since you are also expanding your portfolio of clients outside the group fold, would you like to see the contribution of Tata group companies to shrink and contribution from outside to increase? No, why should we? It gives you so much of assurance that the group companies are giving so much of revenue. Let me tell you, as far as getting orders from the Tata group companies are concerned, this is still the tip of the iceberg. We don’t still have top three companies of the group working with us. We still don’t have Tata Steel. We are only getting small orders from Tata Motors and we are looking forward to receive larger orders from them. I am absolutely ﬁne if I continue to get 55-60 percent of our revenue from Tata group companies. But yes, we are also keen to increase our revenue from companies outside the group. I think, we have opportunity both ways.
You work in six verticals. But its warehousing which seems to be the show stopper for you. Among the remaining five, which one is going to draw your major attention as the next engine of growth? Yes, warehousing is contributing about 55 percent of our topline because we had
started with that. The fact is our ﬁrst foray was warehousing and then we started distribution, value added services, and exim. Among these, distribution is what we have decided to build further. We believe that with GST coming and nine hubs being established irrespective of GST, unless we have a very strong distribution network, it will start harming us.
What is that larger picture you have in mind? What is that ultimate target you have set for yourself? If I read out the business statement of the organization, then we want to become the market leader by 2015. That’s where we are heading. We intend to become the market leader in the Indian logistics scene in the end-to-end logistics services, the most efﬁcient one window solution entity.
Belonging to the Tata group, does it make your task more burdensome because expectations are always too high or is it a privilege? Its always a privilege. But yes, you always carry the responsibility on your shoulders. It’s a huge privilege because you can’t choose to be in a better place or in a better environment than with Tatas. Coming to responsibility, much in the tradition of group, you have to do certain things very seriously. For instance, we have also undertaken some major CSR initiatives.
A Science Graduate with 17 years experience in Supply-chain Logistics functions of industries like FMCG, Retail, Pharmaceuticals, CPG, Tyres, Mobile Telephony, LSP. Demonstrated skills in managing sales distribution and operations from geographically separated distribution centers (DC’s or warehouses). Successfully implemented ERP WMS’s of SAP, RedPrairie DLx & Oracle. Managed both Vendor Managed Inventory (VMI/SOI) and Principal Owned Inventory as a logistics service provider (LSP). In retail, pharma, CPG, F&B, Mobile Telephony sectors, starting from Procurement planning, Procurement Execution, Warehousing, Secondary distribution, Store-wise SKU management for per SqFt revenue enhancement, Store-wise receipts management, payment administration and vendor services were handled for 10+years. As senior management person, well versed of Key Accounts management coupled with P&L, Change Management, Goods & Services Launch support mechanisms, Green & Brown ﬁeld Project Management for warehouse/DC launches, training/retraining of all levels of staff, Cost Optimization drives through Warehouse based processes re-engineering, development of Logistics performance matrices for both internal as well as for customer. Eager for challenging National / Regional level Supply-chain/Logistics/Distribution proﬁles in both start up & organized ﬁrms of both service utilizing and service providing orientation.
C L A S S I F I E D S
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LOGISTICS TIMES November 2010
Tales of a Supply Chain Road Warrior Lawrence Dean Shemesh*
As the principal of a supply chain consulting firm specializing in the design of warehousing, distribution, and fulfillment operations/ networks, I travel around the world helping clients to develop a strategic advantage and tactical superiority over their competitors. Racking up hundreds of thousands of air-miles, my work as “supply chain roadwarrior” brings me into client board rooms where battle plans are conceived to gain market share by delivering a unique value proposition (UVP) to their customers. LOGISTICS TIMES November 2010
he comparative analysis of return-on-investments (ROIs) associated with traditional (manual), mechanized, and automated alternatives is an integral part of this drill. In the battle for supply chain supremacy, reduction in “body count” has always been the justiﬁcation for arming distribution centers with mechanized and automated systems, however in today’s global theater, cost reduction alone is no longer enough to insure survival. Over the course of more than a quarter-century in the logistics business, the last ﬁfteen years of which as a supply chain consultant engaged by many of the most respected companies in the world, I have witnessed a profound change in the rules of engagement pertaining to cost justiﬁcation of warehouse automation. In decades past, an old business adage seemed to apply: “You can have it fast, good, and cheap… Pick any two”. The theory unfolded as follows: Deliver quickly and with high quality; but it will be expensive. Deliver quickly and inexpensively; but it will not be of high quality. Deliver high quality, inexpensively; but speed will suffer. Throughout time, this paradoxical triangle of seemingly conﬂicting objectives has been largely accepted by the business community as a fundamental governing principal. Today, however, my marching orders are aimed at reducing cost, assuring quality, and compressing time within my clients’ operations. Quantum leaps in technology have periodically opened incredible windows of opportunity for those poised to leverage change and break from the rules of convention. The last major change agent was the advent of the world-wide-web which spawned the dot-com boom in the late 1990’s. Fledgling companies, fueled by Wall Street e-tail euphoria and an abundance of venture capital, began to push the realm of possibility within the supply chain in an effort to gain strategic advantage and tactical superiority. This was a technology-driven war that would transform the business world as we knew it. It was a time of accelerated change. Just as the silicon chip (integrated circuit semiconductor device) had lowered cost and increased the performance of electronics and computing; and as Ford’s assembly line had boosted productivity; and as the steam engine had underpinned the industrial revolution before that; lightening-fast web-enabled data movement had forever altered the landscape of the business battleﬁeld. Information began to ﬂow in real-time from storefront web-portals, through Enterprise Resource Planning (ERP) suites, to Warehouse Management Systems (WMS), and Warehouse Control Systems (WCS); delivering order fulﬁllment tasks via radio-frequency data transmission directly to *President and CEO of OPSdesign Consulting, an independent supply chain consulting organization specializing in warehousing, distribution, and fulfillment operations design.
the equipment and personnel on the warehouse ﬂoor. The new electronic data stream condensed processes seamless and virtually eliminated keypunching, paper, and other means of manual intervention. More importantly, it provided a real-time tactical dashboard which operations commanders could use to hone their battle plans and strategically manage their deployment of weaponry, supplies, and troops (systems, inventory, and labor). Some companies, eager to adopt the new technology, hastily applied these new systems to their existing sub-optimized business processes. Many of them crashed and burned as a result. Others recognized the need to reengineer their business models, optimize processes, and only then apply the new arsenal of weapons to achieve a neverbefore achievable balance of speed, cost, and quality. Others simply chose to sit on the sidelines and observe the battle in relative safety. This bunker mentality proved to be the undoing of many companies who fell too far behind their competitors to ever regain dominance in the marketplace. While companies have come and gone in each of these historic battles, one post-war legacy remains, customers (consumers) will never want to give up the unique value proposition (UVP) spawned by the supply chain arms race: They will forever want it fast, good, and cheap! This new paradigm driven by a, more demanding, perhaps spoiled, consumer requires that all three value elements be delivered ﬂawlessly. Today’s challenged economic battleﬁeld has set corporate America’s sights on advanced systems that reduce labor, speed delivery, and increase accuracy, thereby contributing to a competitive advantage. Since order-picking is typically the area in which the largest labor component resides, material handling systems manufacturers have focused their offerings on integrated systems which reduce human travel and the number of touches associated with the picking process. In a book my ﬁrm, OPSdesign Consulting, was commissioned to author for the Warehousing Education & Research
Council (www.WERC.org) entitled, “Pick This! – A Compendium of Piece-Picking Process Alternatives”, we identify and explore a staggering 567 piece picking process alternatives. If nothing else, the sheer volume of differing approaches warrants detailed data analysis and a thorough understanding of goals and objectives before embarking on any picking automation initiative. It has been rightfully said that if you apply automation to a bad process, bad things happen faster. Pick system automation is nothing new. As a matter of fact these technologies are tried and true and have been deployed effectively in Europe for decades. European warehousing, distribution, and fulﬁllment operators embraced these technologies earlier than practitioners
in the United States largely because their higher labor and land costs in conjunction with economic policies that encourage long-term capital investment more easily cost-justify the large upfront expense. Further fueling the case for automation is the global trend towards higher SKU counts, smaller orders with higher frequency, compressed order cycle time requirements, and a plethora of value-added services which add cost to every order processed. Contrary to conventional wisdom, the application of integrated mechanized and automation systems in Europe is not evidenced only in high-tech, high-margin business sectors such as pharmaceuticals, medical, life sciences, semiconductors, precision optics, or advanced ceramics companies.
When to automate? It is important to note, however, that all operations are not good candidates for automation. Some are still best addressed by well-engineered manual processes (bloody trench warfare). At high-level, arming a warehouse operation with picking automation may be a justified when a combination of some of these characteristics are present: 1. High-value inventory (such as jewelry, precision electronic components, etc.) 2. Large SKU populations (particularly with low inventory levels per SKU) 3. Small cube, uniform shape (such as DVDs, cosmetics, medicines, etc.) 4. High order line volume with low units per line 5. Harsh work environment (refrigerated, frozen, etc.) 6. Batch or lot control requirements 7. Kitting, assembly or other Work-In-Process (WIP) buffering/control requirements 8. Value Added Services (VAS) buffering/control requirements The best war-room plans to evaluate the costs/benefits of automation include a thorough historical data analysis (inventory and movement by SKU), compounded by forecast through the design year (typically a five-year horizon). The result of this data crunching effort forms the foundation for the battle plan, allowing a comparative analysis among process, systems, infrastructure, and labor alternatives. It has been my experience that most United States businesses are seeking return-on-investment formulas that yield a three-year simple payback. That being said, it is important to quantify the financial impact of soft benefits such as improved service levels (shorter order cycle times and higher fill rates as examples). Additionally, costs avoided by implementing automation should be calculated and factored into the equation (such as lost sales, charge-backs, incomplete orders, cancelled orders, error correction, and returns). Each design option must be ranked based on capacity, capital cost, return-oninvestment, internal rate of return (IRR), productivity, space, labor, complexity, risk, flexibility and scalability. Only after these “war game” exercises are complete will the smoke clear and the winning battle plan be evidenced.
LOGISTICS TIMES September 2010
The Spanish Experience
uring a recent trip to Spain, I visited a two-million square foot supermarket distribution facility, which housed one of the most highly automated operations in the world. The installation consisted of more than two-hundred Automatic Storage & Retrieval System (AS/RS) cranes operating in dry, refrigerated, and frozen environments. An AS/RS is essentially a high-rise rack or shelving system with long, very narrow aisles in which a crane travels horizontally down the aisle on a floor mounted and overhead rail system. The crane is equipped with a carriage mechanism that travels vertically on the crane mast and inserts or extracts unit loads from either side of the aisle automatically. A Warehouse Control System (WCS) keeps track of the location of each StockKeeping-Unit (SKU) and instructs the machine where and when to operate. In this grocery operation, homogeneous pallet loads (single SKU) are received at the loading dock, the barcode license plate scanned, and then placed on pallet conveyor stations which inducted the unit-loads into the AS/RS storage system where they remained in the proper temperature controlled environment until needed for picking. When that particular SKU was needed to fulfill order demand, the pallet is automatically extracted by the AS/RS crane and delivered to a de-layering station where an overhead suction device is used to lift one layer of cases off the pallet. The layer is then deposited onto a wide array of interleaved conveyor belt sections which “singulated” them, forming a train of cases on a narrow belt. As each case approached the end of the conveyor, it cascades gently onto a low-profile “slave tray” (a uniform plastic carrier) which is fed by an automatic tray destacker. Now that each case is traveling in slave trays, it can be inducted into a “mini-load” AS/RS machine which randomly stores each case (on its slave tray) of product in its correct temperature zone. Once all of the SKUs needed to complete a particular wave of orders reside in the mini-load system, the discrete order picking cycle begins. SKUs (cases) for a particular order pallet are extracted automatically by the system and delivered to an automatic palletizing system which computed the best possible layer and interlocking patterns for the wide variety of case dimensions and weights. The empty slave trays are delivered to an automatic stacker, cueing them for use once again. Once palletized, the unit load is automatically stretch wrapped, labeled, and delivered to the shipping dock in the lane which corresponded to the outbound tractor trailer (in reverse stop sequence). No human touched a case from the time a single-SKU pallet was received at the loading dock until the time
LOGISTICS TIMES November 2010
the multi-SKU stretch-wrapped pallet was loaded onto an outbound trailer. As with all automation, there are of course exceptions. Odd or unwieldy SKUs such as toilet paper, bags of rice, etc. are handled manually and circumvent the automated system. While this accounts for all of the case and pallet volumes moving through the DC, there are also some items that even high volume supermarkets do not receive in case quantities and therefore a “piece-picking” component is needed. Also housed in this facility are a series of “goods-toman” picking modules (sometimes referred to as dynamic picking). Here, the picker stands at a station where the SKUs to be picked are delivered to him/her automatically. Target totes (shipping containers) are also delivered to the pick station. A pick-to-light/put-to-light system identifies which SKUs what quantities are needed for a particular order. Picking personnel simply follow the lighted instructions as the product comes to them. Human pick rates of 400 – 600 order lines per hour are possible with these types of semi-automated systems since unproductive travel and identification/decision tasks are removed from the equation. While the food industry is clearly a low-margin business, the transactional volumes are incredibly high and harsh refrigerated/frozen work environments make it an excellent candidate for automation. This particular company has gained a significant advantage over its competition as a direct result of this monumental automation initiative and they are planning to deploy more such automated operations as part of their growth plan. Conversely, nearly a decade ago, I led an automation project for a leading United States jewelry company whose impetus for mechanizing was driven by a commitment to quality and service as well as a desire to literally and figuratively keep fingerprints (human touches) off their high value gold, platinum, diamonds, emeralds, and rubies. The resulting quarter-million square foot facility is still one of the most highly automated facilities in North America, however, such automation initiatives are becoming more prevalent as pressures to reduce costs, assure quality, and compress time mount. Our more recent automation projects (in the US, Canada, Mexico, Europe, and the Far East) in the appliance, apparel, automotive, biotech, catalog (e-tail), communications, computers & peripherals, consumer products, electronics, entertainment (books, CDs, DVDs), food, fragrances, pharmaceutical, publishing, retail, and technology sectors demonstrate the increasingly broad geographic and industry applications of automated material handling technology.
LOGISTICS TIMES September 2010
COVER STORY: PLM
The definition of product lifecycle management (PLM) is simple. It entails managing the entire lifecycle of a product scientifically so as to ensure optimum value to producers which could also be passed on to consumers. But the moot point is: how to choose and implement an efficient PLM process? Noted domain experts explain various strands of this practice which is gaining prominence thanks to growing competition in all the happening markets of the world.
LOGISTICS TIMES November 2010
More than ever before, there’s an emerging need to deliver better, innovative and greener products all over the world faster and cheaper. Product Life-cycle Management (PLM), the seamless integration of distribution and reverse logistics, is becoming a necessity for the future competitive market. It is the life-cycle decision-making support system that provides a means for management optimization through the analysis of various parameters collected during the life of a product, opines Prof. Samir K Srivastava of IIM, Lucknow
A big deal The conditions a product changes over with time. So, the management needs to be aware of these changes in order to effectively manage them. Over the last few years, manufacturers of instrumentation, industrial machinery, consumer electronics, cellular handsets, telecom equipment, packaged goods and complex engineered products have discovered the beneﬁts of PLM solutions and are adopting efﬁcient PLM software in increasing numbers. The beneﬁts accrued include reduced prototyping costs and reduced time to market, reduced waste, improved product quality and more accurate and timely Request for Quote (RFQ) generation. The ﬁrms have also been able to develop ability to quickly identify potential sales opportunities and revenue contributions. They have been able to generate savings through the re-use of original data as well as by complete integration of workﬂows. Some of them have also been able to develop frameworks for product
optimization. These ﬁrms are better positioned to provide their contract manufacturers access to a centralized product record leading to better coordination and decision-making in their supply chains. The documentation has also assisted in compliance for standards like RoHS, ISO, QMS, etc. The business unit of L&T-McNeil Ltd. implemented a PLM solution to increase the efﬁciency of its product design cycles as early as 2005. After implementation, the business unit was able to halve the time taken to manufacture a prototype from 10 months to about 6 months. Product Lifecycle Management (PLM) is the process of managing the entire lifecycle of a product from its conception, through design and manufacture, to service support and end-of-life disposal. It is one of the four cornerstones of a ﬁrm’s information technology structure. All ﬁrms need to manage communications and information with their customers, their suppliers, their resources within the
enterprise and their planning (SDLCSystems Development Life Cycle). The Core The core of PLM is in the creation and centralized management of all product data and the technology used to access this information and knowledge. It integrates people, data, processes and business systems and provides a product information backbone for ﬁrms and their extended enterprise. This includes managing engineering changes and release status of components; conﬁguration product variations; document management; planning project resources and timescale and risk assessment. For these tasks graphical, text and metadata such as product bills of materials (BOMs) needs to be managed. At the engineering departments level this is the domain of PDM (Product Data Management) software, at the corporate level EDM (Enterprise Data Management) software. These systems are also linked to other corporate systems such as SCM, CRM,
LOGISTICS TIMES September 2010
COVER STORY: PLM
and ERP. PLM as a discipline has emerged from tools such as CAD, CAM and PDM. Present product information creation tools include word processors; spreadsheet and graphics programs; requirements analysis and market assessment tools; ﬁeld trouble reports; and even emails or other correspondence. So, PLM should not be seen as a single software product but a collection of software tools and working methods integrated together to address either single stages of the lifecycle or connect different tasks or manage the whole process. Some software providers cover the whole PLM range while others a single niche application. Some applications can span many ﬁelds of PLM with different modules within the same data model. It should be noted however that the simple classiﬁcations do not always ﬁt exactly, many areas overlap and many software products cover more than one area or do not ﬁt easily into one category. It should also not be forgotten that one of the main goals of PLM is to collect knowledge that can be reused for other projects and to coordinate simultaneous concurrent development of many products. It is about business processes, people and methods as much as software application solutions. Although PLM is mainly associated with engineering tasks it also involves marketing activities such as Product Portfolio Management (PPM), particularly with regards to New Product Introduction (NPI). ICT development has allowed PLM to extend beyond traditional PLM and integrate sensor data and real time ‘lifecycle event data’ into PLM, as well as allowing this information to be made available to different players in the total lifecycle of an individual product (closing the information loop). This has resulted in the extension of PLM into Closed Loop Lifecycle Management (CL2M). Siemens PLM Software is one of the leading global providers of PLM software. Satyam Computer Services has entered into a global consulting and systems integrator tie up with Siemens PLM Software aimed at providing optimised LOGISTICS TIMES November 2010
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product lifecycle management software and services to customers enabling them enhance efﬁciency and increase their business turnover. Similarly, Wipro Technologies has tied up with Oracle Corporation to jointly develop a PLM solution for the consumer packaged goods (CPG) industry. The solution will be based on Oracle’s Application Integration Architecture. Wipro will provide CPG industry domain expertise and development skills and accelerators to co-develop the solution with Oracle. Earlier, EDS Technologies Pvt Ltd tied up with ICEM to enhance its PLM portfolio with ICEM Shape Design solutions, to cater to the shape design and styling market. Bengaluru based EDS is India’s largest provider of PLM Solutions and 3D Visual Simulation. Dassault Systemes (DS) offers the SmarTeam Design Express (SDE) for multi-computer-aided design (Multi-CAD) to help small and medium businesses (SMBs) in PLM. SDE allows manufacturers in quick implementation of an optimum collaborative product data management. i-ﬂex solutions Ltd., India’s leading software products company offers Flexcube, a complete product suite aimed at the banking sector. It has acquired Equinox, a company that operates in the business process outsourcing space. Its acquisition by Oracle is expected to enable it to tap the highly lucrative US banking and ﬁnancial services markets. Scandent Solutions Ltd has opened a new innovation centre in Bengaluru to deliver PLM solutions to automotive, high technology and packaged consumer goods sectors. The company will base 70 of its 150 PLM consultants at the new centre. Other notable PLM service providers are INCAT, Seco Tools AB, PTC, Geometric Software Solutions, Symphony Services Corporation, etc. Finding and selecting the PLM solution that can best meet one’s organization’s immediate and long-term needs is a complex and demanding task. Cost versus beneﬁts, as usual, is an important
consideration which may not be too easy to estimate at the beginning. If an organization succeeds in selecting the right software and implementation partner, it will have short time-to-value as well as all the beneﬁts PLM can provide for many years to come. However, a wrong selection may result in budget overruns, implementation delays, user dissatisfaction and rejection, and maybe even the need to go through a similar evaluation process again after only a few years to add missing functionality or replace the entire system. Achieving full advantages of PLM requires the participation of many people of various skills from throughout an
extended enterprise, each requiring the ability to access and operate on the inputs and output of other participants. Despite the increased ease of use of PLM tools, cross-training all personnel on the entire PLM tool-set have not proven to be effective in many cases. Resistance to change, improper skill-sets and difﬁculties in seamless integration have also stiffened PLM popularity. Further, ﬁrms need to incorporate sustainable values into their product life-cycles, supply chains, logistics and transportation processes as this is likely to give them an edge over their lesssustainable competitors. PLM sofware solution providers and implementers need to address all the above.
The Backbone Why PLM is vital? Because it integrates people, data, processes and business systems and provides a product information backbone for companies and their extended enterprise, argues Prof Akhil Chandra, National Head, Institute of Logistics and Aviation Management Quality, Efﬁciency, innovation and responsiveness to customers are the pillars on which survival of manufacturing companies depend in today’s cut throat competitive environment. Companies strive to bring quality products in the marketplace through the innovative ideas of their research and development teams so as to grab new opportunities in the marketplace and maximize their market share for long term sustenance. It is through operational efﬁciency that costs are minimized so as to maximize return on investment. It is through supply chain management that operating costs are further reduced
integrating operational aspects of a product binding suppliers, manufacturers, logistics companies, channel partners, retailers and ﬁnally the customers, through judicious application of software tools like ERP and CRM increasing responsiveness to customers. But that does not take care of product costs involved in introduction of new products and enhancement. To economize on costs related to new releases of products and their enhancement with new features, product life cycle management (PLM) is the answer. PLM manages the entire lifecycle of a product from its conception, through
LOGISTICS TIMES September 2010
COVER STORY: PLM
design and manufacture, to service and disposal. Releasing more products and product enhancements with new features has to be a continuous and dynamic process to survive the onslaughts of competition for manufacturing companies but without standardization, doing it all over again and introduce new products can increase direct and indirect costs substantially killing proﬁts. Product life cycle management helps in cutting down product costs and increase in new product investments. By taking advantage of existing technology and by building in ﬂexible business processes and solutions, manufacturers, with their integrator partner and PLM software vendor, can infuse more exacting standards into their product life cycles to reduce time to market, cut down on product costs, and increase yields on their new product investment. PLM integrates people, data, processes and business systems and provides a product information backbone for companies and their extended enterprise. The core of PLM (product lifecycle management) is in the creations and central management of all product data and the technology used to access this information and knowledge. PLM as a discipline emerged from tools such as CAD (Computer aided design), CAM (Computer aided manufacturing and PDM (Product data management) but can be viewed as the integration of these tools with methods, people and the processes through all stages of a product’s life. Within PLM there are ﬁve primary areas viz system engineering ( SE),Product and portfolio management ( PPM),Product Design, manufacturing process management (MPM) and product data management ( PDM). PLM can be thought of as both a repository for all information that affects a product, and a communication process between product stakeholders: principally marketing, engineering, manufacturing and ﬁeld service. PLM may also serve
LOGISTICS TIMES November 2010
Benefits • • • • • • • • • •
Reduced Time to market Improved product quality Reduced prototyping costs Savings through the re-use of original data Reduced waste Savings through the complete integration of engineering workflows Ability to provide Contract Manufacturers with access to a centralized product record Maximizing revenue by beating the competition to market with products that justify premium pricing. Delivering first-to-market advantages that will hike sales. Cutting down on costs by reducing operational expense by curtailing unnecessary rework, implementing lean initiatives, rapidly adjusting to changing compliance regulations ,and reducing material, structural, and warranty costs. Extending the profitability of product lines by economically delivering alternatives and spinoffs.
as the central repository for secondary information, such as vendor application notes, catalogs, customer feedback, marketing plans, archived project schedules, and other information acquired over the product’s life. The PLM system is the ﬁrst place where all product information from marketing and design comes together, and where it leaves in a form suitable for production and support. What a PLM integration plan allows a manufacturer to do is to capture all knowledge, from tacit to explicit, and leverage it in a life cycle process that improves the efﬁciency of the product from start to ﬁnish. With a true integration plan of attack, a PLM plan becomes a product innovation strategy. When speed to market is of the essence, a properly integrated PLM solution allows manufacturers to quickly design and validate products and processes in a virtual environment, rather than a physical one. Working in a virtual environment will truly cut down on time and will create a setting where innovation can occur almost overnight. Companies need their people, processes,
and intellectual capital to work together and not against each other in an effort to accelerate new product development while at the same time reducing operational costs. Finally PLM will digitally transform the life cycle used to conceive, design, manufacture, service, and improve product offerings. During the era of takeover and mergers in the corporate world, product life cycle data repository helps to gauge the suitability of such options as a single point information is made available to the new enterprise. Further as demand for green technology is catching up, products can be reengineered faster as entire information of product life cycle in form of useful data is available to research and development team in a capsule form. Supply chain management and product life cycle management shall co-exist both emphasizing on cost reductions, one emphasizing on reducing operational cost in the value chain in a broad manner while the later reducing costs in core areas related to introduction of new products together wi with w it their enhanced features required by a new generation
From Cradle to Grave Dr John Stark’s book PLM in 21st Century is for people who are interested in developing, selling, supporting and using manufactured products and the services related to them. Its subject, PLM, is a new activity for manufacturing companies that opens up new business opportunities. PLM manages each individual product across its lifecycle – from “cradle to grave”; from the very ﬁrst idea for the product all the way through until it is retired and disposed of. Managing a product all the way across its lifecycle allows a company to take control of what happens to it. But PLM doesn’t just manage one of a company’s products, it also manages all of its products. Even better, it enables the company’s complete portfolio of products to be managed in an integrated way. This new activity of PLM emerged in about 2001. Before then, companies implicitly managed products across their lifecycles, but they didn’t do this, even conceptually, in an explicit, “joined-up”, continuous way. Because it wasn’t done explicitly, things fell through the cracks: • Decisions weren’t co-ordinated • Risks weren’t fully analysed • Information got lost • Customer requirements were misinterpreted • Time was wasted • Key relationships were ignored As a result, although it appeared that everyone in the product development, manufacturing and support chain had done their work correctly, the product didn’t work properly in the ﬁeld. By bringing together previously disparate and fragmented activities, systems and processes, PLM helps overcome the many problems that resulted from the old unconnected approach. PLM also manages a company’s projects
to innovate and develop products, and their related services, all the way across the lifecycle. Without new products, company revenues will decline. Innovation activities are the source of growth and wealth generation in a company, and PLM makes them more effective. PLM helps a company get control of its products and services, and enables it to take responsibility for them across the lifecycle. Mastering the activities in the lifecycle makes it easier to provide reliable products, sell services on them, and even sell services on competitors’ products. PLM is a holistic business activity addressing many components such as products, organisational structure, working methods, processes, people, information structures and information systems. It’s a new paradigm, a new way of looking at the world. OED Online proposes various deﬁnitions and examples of the word “paradigm” such as : • In a nut-shell, paradigms are ‘universally recognised scientiﬁc achievements that for a time provide model problems and solutions to a community of practitioners’ • If one uses the word ‘paradigm’ as Wittgenstein himself used it, to denote a logical or conceptual structure serving us as a form of thought within a given area of experience Based on this, it could be said that PLM proposes a new conceptual structure serving as a form of thought about manufacturing industry in the beginning
of the 21st Century. In which case it’s not surprising that it can’t be completely described in a few words, but requires a few chapters. Those chapters, in this book, will help you understand if PLM is relevant for your company’s particular situation of market, customers, competitors, technology and available resources. They will help you identify its speciﬁc opportunities and how to achieve the related beneﬁts. Companies can implement PLM in pursuit of opportunities and beneﬁts at three levels: • a strategic level at which the objective is to develop and support products and services in a way that leaves the competition behind • a tactical level, focused on improving processes and achieving time-tomarket advantages • an operational level focused on efﬁciency To achieve the different levels of opportunity and beneﬁt, there are three corresponding levels of effort. To reach the strategic objective will require a company-wide PLM initiative based on a 5 year plan. Companies have inertia and momentum. Just as it takes a long distance to turn a large, fast-moving oil tanker, it takes a long time to change even a medium-sized company. To reach the tactical level of beneﬁts does not require a company-wide initiative, but will nevertheless need a cross-functional approach, focused on improving performance in a well-deﬁned area, and
LOGISTICS TIMES November 2010
COVER STORY: PLM
will take at least two years. Beneﬁts at the operational level can be achieved by improving individual activities in a particular part of the company. Usually it is glaringly obvious when a major improvement can be had in such an area for little effort. This cherrypicking of low-hanging fruit can yield big short-term beneﬁts in a few months. The different levels of effort imply the
availability and application of different types and levels of resources. Different resources can support different efforts that lead to different beneﬁts. One of the major issues when deciding how to implement PLM is to realistically align the resources that can be committed, with the response that is proposed, and the opportunities and beneﬁts that are expected.
‘Companies are focusing on short term survival’ Dr John Stark, on the eve of the release of the revised edition of his original book, opens up in a freewheeling dialogue with Ramesh Kumar. Excerpts: What prompted you to prepare a revised edition to be released next year? I wanted to bring the book up-to-date with PLM as it is in 2010. Since the ﬁrst edition was published, PLM has continued to develop and become more important. However, it’s not easy to keep everyone informed of progress. In the last few years, I’ve consulted on PLM with companies in many sectors, such as aero, rail, industrial electronics, machine tool, beverage, medical device, and pharmaceutical. I frequently ﬁnd that people have good knowledge of some areas of PLM, but not of others. They generally know a lot about the applications. But a lot less about other components such as business
LOGISTICS TIMES November 2010
processes, risk management and metrics. Yet the risks associated with products have never been greater. In the last year alone, there’s been the recall by Toyota of about 10 million cars worldwide. And BP set aside $20 billion to pay for a problem with a blowout preventer on the Deepwater Horizon. PLM helps get control of products and reduce risks. It also helps companies take advantage of today’s opportunities for products. The opportunities have never been greater. For example, worldwide sales of products such as mobile telephones are running at over a billion units a year. On the whole, how much you were forced to rewrite? 85-90% is new or rewritten. As well as
adding new material and updating exiting material, I also changed the structure. I wanted to make it easier to update for future editions. Over the years, has there been any major change in the way business leaders think about PLM? Deﬁnitely. There are now companies where CEOs are setting ﬁnancial targets for 2020 and asking how PLM can meet them. I didn’t see that acceptance and reliance on PLM in the early years of this century. However, there are a lot of companies where middle managers are still trying to get executives to understand that PLM exists. And, of course, a lot of companies are currently focused on short-term survival. They’re looking for cost reductions. Not at investing for the future. Maybe they’re not even aware of PLM’s role in reducing product-related costs. Can you summarise your new observations that may form the new edition? The main focus, objectives and components of PLM haven’t changed fundamentally. However, they’ve evolved, and that’s reﬂected in the new edition. In addition, the new edition has a lot of practical implementation details about portfolio management, product structures, data models, applications, business processes and metrics. These are key areas of PLM, and are a challenge in most PLM projects. What is the impact of fast paced PLM on the supply chain management? Fast-paced PLM creates great opportunities for the supply chain and the design chain. In today’s markets, OEM’s don’t have the resources to do everything. They have to focus where they can create most value. Usually this is in a few strategic activities such as getting customer requirements right, and developing the right top-level design. Everything else has to be done by suppliers. That makes for fantastic opportunities for the supply chain, where
companies can design and produce ever more complex assemblies and modules, and leave the OEMs to sell them to billions of customers worldwide. Is PLM heavily technologydependent? That’s a difﬁcult question. It’s like asking if tea is heavily water-dependent. The answer is Yes and No. A good cup of tea couldn’t exist without water, yet at the same time, most people would say that the water isn’t the most important component. It’s similar with PLM. Without technology, PLM would be a shadow of what it can be. But once the technology is in place, the many other components of PLM build on that foundation. Then it’s up to people to identify great new products, get them to market fast, and increase the value of the
product portfolio. You are coming out with a revised edition after 7 years - obviously you felt a compelling need to retell or recalibrate your observations. The way global business is metamorphosing, how soon you would be forced to further revise the 2011 edition? I expect a new version by 2014 or 2015. Over the last decade, progress with PLM has been slow. But that was to be expected. New approaches take time to become known and accepted. The foundations of PLM have been put in place over the last decade. I expect to see PLM growing fast in the next few years, and the book will have to be updated to keep pace with progress.
Sales up, margins down.
What’s wrong? Gati Executive Director Harry Lagad delves deep into his mindshelf and comes out with some interesting insight on the need and importance of PLM. As I studied the slide on the screen and tried avoiding direct eye contact of the dejected Product Director, my mind slipped back to the day, almost three years ago. We had assembled in the glittering city of Dubai and the even more star studded ballroom of Dubai’s Al Burj hotel. It was the global sales and marketing meet and on stage stood the head of Sales for devices. In his hand, he held a prototype of a competitor’s phone. Almost 600 of the company’s senior most
managers looked on as he held up the device and waved it all around. “Ladies and Gentlemen, a Touch screen phone, No Keypads, no buttons !. Next thing you know, they will have a plane landing with a touch screen joystick!” The hall roared with laughter. With almost a contempt ﬁlled gesture, he tossed the device over his shoulder, where it crashed and tinkled into hundreds of pieces. Amidst the roar of approval that ﬁlled the hall, a few of us, sat there, muted. We knew, deep in our hearts, we had just
seen the future and knew our company had no products to match. Not only that, we were launching products at the wrong time and not able to make the right Life Cycles.
Soul Searching The cold voice of the MD, as he spoke, snapped me back to the present. “People, if we don’t do something, we shall be left with a skew of products and no proﬁts. This is probably the worst it is today.” He looked at me and Steve, our Product Director, “Gentlemen, ﬁnd a way to ﬁx this. In three years, competition has come up many notches. They have lesser products and fatter margins. Our Time to launch is appallingly behind schedules and operationally, we are not able to bring the product to market quickly. Not only there, our ratio of Product R&D to Proﬁts is the lowest in the industry. We may have the best S&OP but sadly, we have nothing to connect all operational processes together. The Product information creation process was laborious and the quality of information was poor. The company is also struggling with low capacity utilization due to poor co-ordination. “ I left the boardroom that day, pensive and trying to pull together my thoughts on the best way forward. For the next four weeks, Steve and I worked ceaselessly to gather our team and come up with a plan. “Connecting the Dots” as we called the project, had the following phased approach:
LOGISTICS TIMES November 2010
COVER STORY: PLM
Connecting the Dots : How the Team introduced PLM to the Organisation
Device Strategy • Enterprise Goals • Device Requirements • Technical Roadmaps • ODM /Mfg Strategy • Network and Content Strategy
Ranging • Portfolio planning • Product Team Roadmaps • Partner with Sourcing on Commercial terms • Device Business Cases • Lifecycle Planning • Selecting Devices
Sourcing • Negotiations • Managing Vendors • Business intelligence • New ODM/ Facotry • Introduction
1. The Vision, strategy & Roadmap creation. 2. Development of the PLM processes 3. Performance Measurement It was not going to be an easy task. A well run organization, highly proﬁtable and in one of the most sought after growth area had more people issues than any other organisation. We had to manage this as if we were taking a bunch of students through a learning curve. The entire journey began with putting in the basics of this process through the company.
Vision, Strategy and Roadmap creation The ﬁrst step in the product development was to create a Vision for the product. We began by creating templates which could capture the “need” for which the product, check alignment with the overall company strategy and positioning. We had meetings with sales and marketing teams to determine competitive positioning. We met with vendors to determine components and development requirements of competitors. This detailed into a product strategy and roadmap: go to market, vendor
LOGISTICS TIMES November 2010
PLM • Maximising product contribution margins • Managing Product Lifecycle Plans • Identifying product performance issues • Coordinating tactical decisions
Objective for the Project Team is to present our Company’s proposed PLM process, leading to the Change to Profits.
New product Introductionm • Coordinating NPI activity across stakeholders • Data transparency • Identify and address bottlenecks
management and sourcing strategy, pricing points, proﬁtability goals, etc. In the case of mobile phones this meant determination of features of a handset, keeping a target customer segment in mind and evaluating the correct price point for the phone. Based on market data, a particular volume is targeted and a strategy / roadmap for its development and positioning was ﬁnalized.
Development of the PLM process Given the exhaustive and wide coverage of PLM, the processes need to cover the following: Conception: The conception stage of any product lifecycle relies heavily on customer data, market research and focus groups feedback. This information allows the designers to frame the technical parameters of the product. Design: The design phase will usually be based within a CAD framework, allowing developers to complete the process from design conception and reﬁnement through to stress testing. Modern day PLM solutions act as (a) a repository for all information that affects a product, and (b) a communication
process between product stakeholders: principally marketing, engineering, manufacturing and ﬁeld service. PLM systems are the ﬁrst place where all product information from marketing and design come together, and where they leave in a form suitable for production and support. Collaboration with vendors is key for success in this phase: to ensure compatibility / suitability and availability (quality and quantity) of the components required for manufacture of the end product. This also helps to synchronize their design / development efforts with main product design. This also calls for the establishment of a PLM portal, where information could be collated / disseminated without much fuss.
Ranging/Product Portfolio As the MD had pointed out, if we do not do anything about our portfolio, we would be left with a skew of products and no proﬁts. The product portfolio decisions made today would determine the relevance of the company tomorrow. With such a ﬁne line between success and failure, our company had to make product portfolio decisions based on
fact—not guesswork, political agendas, intuition or the opinions of the loudest voice in the room. To increase the chances of marketing a successful product, our internal organizations must become value driven. This was our biggest challenge. Becoming value driven requires a continual assessment of how value can be increased through the optimization of the products, services and projects that the organization delivers. Product and Portfolio Management is focused on managing resource allocation, tracking progress vs. plan. We had to align it to a popular way of achieving this : Simply put, scorecards - where desired features of the product (e.g. mobile phones) would be listed against various target market segments / price points. The various products in development and production would be given points
based on the features and then ranked. Prioritization for the purpose of resource allocation and management focus would also be done accordingly. This score would be continuously updated and revisited for decision making.
Realization Once the product design had been ﬁnalized it was necessary to develop an efﬁcient manufacturing process to make the best use of production resources. We evaluated the commonly used manufacturing process management (MPM) software to convert the Bill of Materials (a list of necessary parts for the product prepared during the design phase) into a Bill of Processes. MPM software can also help in the design of the most efﬁcient production line scenario, reducing lead-time to the product launch and minimizing work in progress (WIP) inventories.
Product data management (PDM) is the business function within product lifecycle management that is responsible for the creation, management and publication of product data. The data tracked usually involves the technical speciﬁcations of the product, speciﬁcations for manufacture and development, and the types of materials that will be required to produce goods. The use of product data management allows a company to track the various costs associated with the creation and launch of a product. This includes managing engineering changes and release status of components; conﬁguration product variations; document management; planning project resources and timescale and risk assessment. It serves as a central knowledge repository for process and product history, and promotes integration and data exchange amongst all
• PLM coordinates decision rights across a number of departments, with the goal of consolidating product lifecycle planning responsibilities within a single team • Departments are involved in Decisions based on whether they are budget /decision owners or customer stakeholders
PLM Coordinates with function on:
•Cost erosion • Wr i t e - d o w n funding •Channel Support
How PLM helps function achieve goals
•Delivers detailed reporting to support negotiations
•Provides feedback on current performance to improve Ranging decisions
•Launch timing •Polarisation
•Demand/ Supply Balancing
•Tailored Segment offers
•ATL Campaigns •BTL Promos
•Channel Incentives •Tarining
•Coordinates activities to improve launch success
•Helps reduce WOC on slow moving stock •Provides notice of likely demand changes
•Reduction of discounting on slow-moving product
•Increase Profits •More rational product offers to segments drives margin and share
•Increase acquisition and retention through better device performance
•Help optimise channel mix and align incentives between Device and Channel
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COVER STORY: PLM
business users who interact with products — including project managers, engineers, sales people, buyers, and quality assurance teams. The advantages of formal PDM solutions include: Track and manage all changes to product related data; Accelerate return on investment with easy setup; Spend less time organizing and tracking design data; Improve productivity through reuse of product design data; Enhance collaboration;
Service Customers and service engineers must be provided with service information to allow them to repair or order the repair of faulty products. While this phase may not seem as important as the design and manufacture of the product, it is the most visible phase to the customer, and performing well will increase customer satisfaction and improve customer retention. The service phase largely revolves around using maintenance, repair and operations (MRO) software to build a knowledge base containing maintenance and repair information for service engineers, as well as warehouse management software to manage an inventory of replacement parts. Availability of spare parts at the right place and right time is key for quick turnaround of repair and hence reverse logistics and spare parts planning is essential.
End of life The operational life of products is quite a challenge, because systems keep evolving to ﬁt in the market and to beneﬁt from technical capabilities. The decision for withdrawing / de-ranging a product seems to be a complex task and there a lot of issues to be resolved. Continuous monitoring of market data and new product introductions are required to determine when a product needs to be phased out. The timing for the transition is critical in that there needs to be a ﬁne balance between leaving “money on the table” for the concerned product as against the
LOGISTICS TIMES November 2010
gains from introducing a new product at the right time. Care is to be taken to not spend money and energy in promoting goods, which are reaching end of their life. Careful consideration needs to be given to the pipeline inventory of the outgoing product to avoid loss due to price erosion as well as the eco friendly means of disposing the used pieces. Common: None of the above phases within PLM are in isolation. For successful product management information needs to ﬂow between different people and systems. Integration between various IT based solutions for niche segments of a product lifecycle with the backbone ERP of the company is also vital. Measurement: Some of the common measures in the PLM arena are: • Time to market. • Percentage of components reuse • Supplier scorecards for assistance in product development, lead times, pricing, etc. • Financial impact: Revenues, Units sold, Unit cost / Contribution, channel inventory, manufacturing and logistics costs, spend on promotions The ballroom of Hotel Shangri La in Singapore is a place where the most glittering events are held. Immense in
size, and studded with chandliers and ornaments, it commands an occassion that has to be big in nature to be celebrated here. Most of us in the room that day were eager to meet the global CEO and his team. It wasnt yet the month of November, so we were a bit perturbed as to why the CEO and his team had made this special visit. We were soon to ﬁnd out. Our MD began the proceeding with a small speech welcoming the CEO and his team and stating that there was an important announcement that the CEO himself wanted to make. It was a moment I would always remember. As he started to speak, it was evident that he was talking about the “Connecting the Dots” project. Slowly, eyes started turning towards our small group and then as the ﬁnal words of the CEO spelt out the results, the ballroom erupted into the loudest roar I had ever heard outside of a football stadium. The Project, that we had begun almost a year ago, was now to be introduced globally and the ﬁrst cut results of the new project would deliver an amazing 100 million dollars worth of potential proﬁts to the company’s results. To me, this was the moment of my life.
The Process The Product Life Cycle refers to the succession of stages a product goes through. These stages comprise of product development, market introduction, growth, maturity and end of life / disposal. Each stage poses different challenges, opportunities, and problems to the seller and proﬁts rise and fall therefore requiring different marketing, ﬁnancial, manufacturing, purchasing, and human resource strategies in each life cycle stage. Product Life Cycle Management (PLM), therefore, is the succession of strategies used by management as a product goes through its life cycle. The obvious beneﬁts to a structured approach to PLM is increase in revenue (through quick time to market, innovation and initial mover advantage) and maximizing product proﬁtability (improved product quality, reduced product development costs, overheads, waste due to markdowns at end of lifecycle, Successful PLM requires Integrating people, processes, business systems, and information / data.
LOGISTICS TIMES November 2010
COVER STORY: PLM
A Sensible Approach Are you friends with a cannibal? On occasion they may make good companions, but when push comes to shove you may have to watch your back – literally! Your products are the same way. Allowing unlimited SKUs not only slows your company down but may hurt sales among other product lines through competition with their lethargic counter parts. The focus should be on getting out of this death spiral, says Kate Vitasek, and Joseph Tillman. LOGISTICS TIMES November 2010
SKU rationalization has been a popular tactic among supply chain professionals for the past decade as a way to take control of unwieldy operations; operations that may have evolved to support thousands of non-productive products. In fact, some companies are surprised to ﬁnd the 80/20 rule is even more extreme when they stop and do an analysis of SKU proﬁles and the productivity of SKUs in their current portfolios. For example, one company we recently worked with had 80% of the revenue come from just 3% of their products. How do companies fall into the trap of slow moving SKUs which ultimately fail after millions of dollars were spent on new product introductions? In many companies, marketers chase the hope that they will invent the next “blockbuster” product which will take the marketplace by storm. To their credit, today’s consumers have an insatiable tendency to shift focus from one product to another with unbelievable speed. Companies, in turn, create a variety of products to quench the thirst of price-conscious consumers who are the cornerstone of the consumer product industry. For many, the key strategy employed is to ﬂood the market with a breadth and depth of products – hoping the payoffs of the successes will outstrip the cost of the failures. Coca-Cola is a great example. For more than half of its history Coca-Cola had one product in one package. The 1950s brought the advent of packaging choices
and various ﬂavor introductions. Then in 1985, the beverage giant made a bold move in its ﬁrst formula in 99 years by introducing “New Coke”, only to be discarded in months because of consumer backlash. Walking through your local grocery aisle reveals dozens of SKUs for Coke branded product ranging from Classic Coke to exotic ﬂavored versions. As more companies adopt this strategy – the problem only gets worse for the entire industry – a virtual death spiral for over 90% of new products. Just how big is the death spiral? Let’s look at some simple facts which reveal how big of a problem new product introductions have become. • The failure rate of consumer products is 95% in the U.S. and 90% in Europe. • Research shows: Fewer than two hundred of the hundreds of thousands of products introduced over a recent 10-year period earn sales of more than $15 million a year. • Only 45% of new products experience an on-time launch – a key driver in the long term success and future viability of a product. • At most, only 10% of new products are successful after three years. This includes products in various sectors including consumer package goods, telecommunications services, even Hollywood movies. Simply put, the problem is that most of the products that are released into the marketplace fail and thus create costs, and an unbelievable amount of costs. So what can this mean for your business? In addition to swamping your supply chain, your products will turn into cannibals by eating sales from other product lines which end up competing with their lethargic counterparts. Keep in mind that each creation requires new SKUs, which are not often removed from the system after the promotional period or product life time has ended. Moving along the chain, we ﬁnd that oftentimes retailer/distributors fail to remove them leading to complexity throughout the supply chain. To top it off, companies continue to invest millions of dollars in product LOGISTICS TIMES November 2010
COVER STORY: PLM
development – just to compete with themselves.
The Traditional Approach Currently companies are under intense cost pressures - warehouses are busting at the seams as the number of SKUs goes up, causing inventory turns to go down and swamping the supply chain. Only now are supply chain professionals focusing on this problem. Their leaders are stepping up and winning the SKU proliferation battle, cutting SKUs to make supply chains more efﬁcient. For most companies this means adopting some form of SKU rationalization effort – where analysts try to weed out poor performing SKUs. However, the damage has already been done – huge investments in product development, marketing and product launch costs have already occurred. Putting energy into SKU rationalization alone is a poor approach. The truth is that ﬂooding products into the market causes substantial strains upon
LOGISTICS TIMES November 2010
all divisions of the company, particularly the supply chain. And once the product launches all these strains become sunk costs. Indeed as more and more products are introduced, organization complexity increases exponentially which means that every company in the supply chain will feel a portion of the growing pains. Every product line that a company creates requires product roll-outs, more SKUs, employees to work the product line, and future rationalizations (performance analysis) of the line as the products become obsolete or fail, as most do.
satisﬁes consumer needs and wants while delivering value. To do this, we outline three proactive approaches which can help rationalize SKU introduction. This calls for a change in mentality of the organization, from one where products are rushed to market into one where products are veriﬁed as actually contributing to corporate vision and proﬁtability and that the product is truly satisfying customer needs and wants while delivering value. We outline three proactive approaches that companies can use to help rationalize SKU introduction.
A Change in Attitude
To move forward, companies need to solve the real cause – doing a better job introducing new SKUs. This will enable them to get ahead of the curve and nip the need for SKU rationalization in the bud. The organization will have to move from being one that rushes products to market to one where products are veriﬁed as contributing to corporate vision, proﬁtability, and that the product truly
Marketing testing involves a trial production of a product to determine market capabilities before a companywide roll out. Testing gives a company the ability to obtain better ideas, determine if the product will succeed in the market and see if the product will meet its purpose – to deliver proﬁts, increase company market share and add to brand image. In addition, it offers the added bonus of
being able to demonstrate the potential issues of the product’s marketing, packaging sizes, compatibility, etc. Finally, market testing allows for collecting endconsumer feedback. By using market testing, a company not only ensures it is delivering products that will stand a chance in the market, but it also helps strengthen the full product launch to be as successful as possible. Going one step further, the product should not be entered into the company’s IT systems unit it has passed this phase, in order to negate the need for removing a failed test later. In addition, market testing can help your products align to the supply chain (or vice versa) which distributes them. ‘Functional’ products (basic necessities like toilet paper, water) should be incorporated into “efﬁcient” supply chains (focused on delivering/stocking ubiquitously with the lowest cost at a given service level). On the other hand, ‘innovative’ products (new, leading edge, e.g. laptops, game consoles, processors) should be incorporated into “responsive” supply chains (high cost, focused on fast replenishment, and immediate forecasting at a given service level). By incorporating the product into the correct supply chain the product can be launched properly and the system is set-up to easily handle the products needs in the future.
CFTs Cross Functional teams (CFTs) have gained traction over the last decade. They are a way for companies to streamline product creation and mitigate the obstacles that were present when company divisions operated as silos and did not work in tandem. Using CFTs, divisions help each other to create the best product possible, which contributes to market success. Whether using preexisting CFTs or creating new CFTs, the team should have a system for ﬁltering out products with limited long-term prospects, and have no real reason to be introduced. When multiple divisions of a company offer perspectives into the potential success of a product, unnecessary projects can be avoided and
A New Way of Thinking One of the biggest obstacles for a company to overcome is culture. We advocate a new way of thinking about product introductions and product portfolio or lifecycle management. As mentioned, product rollouts are usually coveted as opportunities for rapid growth. While this may be true depending on the situation, the majority of products are hidden daggers cloaked in a marketing guise of profits and success. When these products fail, the dagger is revealed and strikes at the core efficiency of the supply chain. A recent idea gaining traction is separating product development into early and late stages with the help of computer software. These software packages either model or work in tandem with stage gate and commercialization processes that have evolved over the past 20 years. Early stages are geared toward research and eliminating bad apples (aided with computer heuristics, analysis and forecasting). The late stages are for maximizing value and inculcating the product line into the supply chain. While research on this new trend is sparse, the early adopting companies, specifically pharmaceutical, implementing computer aided staged product introductions have experienced tremendous gains in efficiency and higher launch success rates. It is also a critical area for high tech companies whose product lifecycles can be very short. Within our client base, we regularly see product proliferation and the lack of a formalized stage gate process that is used consistently throughout the company. Rather than just pumping out new products and seeing what sticks, products should be introduced with the expectation that they have a finite life and are to be actively managed throughout a defined lifecycle. The lifecycle is criteria based and considers the total effect on the product portfolio as well as the supply chain. In addition to implementing a defined stage gate process to get products to market, leading organizations actively manage the portfolio and have defined exit strategies for every product. Strategies and plans for managing the portfolio are now often being integrated into the monthly Sales & Operating Planning process. A structured portfolio review often starts the S&OP cycle and is designed to not only evaluate the portfolio in a structured and objective way, but also to ensure coordination with demand and supply planning. This is especially critical to consumer goods companies and others who deal with managing thousands or tens of thousands of SKUs. more time can be spent on products with higher chances of success.
The Benefits of Limiting Product Introductions The practice of rationalized product introductions is rarely used in industry, where the majority of situations involve
multitudes of product being rushed to market and being entered into the system quickly. When this strategy is used, and fails as it usually does, all of that work clutters the system and inhibits optimal supply chain performance. The effect of rationalized product introductions on the supply chain is in stark contrast LOGISTICS TIMES November 2010
COVER STORY: PLM
to industry practice. When a product is introduced correctly and successfully, the supply chain can easily work with the product line, schedule forecasts accurately, and maintain easy control over inventory requirements. In terms of product availability, with fewer SKUs to ship, companies have more space for inventory from valuable product lines. This helps to reduce stock outs on retail shelves. Additionally, an important rule of thumb to remember in this type of scenario is that the more products you have on the shelf, the more shrink that you’ll experience. Remember more products equal out-of-stocks and more shrink, so introduce wisely and rationalize as necessary. Each product line that a company reduces will allow for decreased amounts of labor at every point of contact. This includes labor for shipping, rotating stock, material handling, processing markdowns, etc. Add onto this the reduced cost of manufacturing the product, shipping it, storing it and various other costs, and it soon becomes apparent that there is a considerable amount of capital that is tied up with slow moving inventory. While the ﬁnancial investment of this capital is daunting enough, the opportunity cost of that capital must be considered. By freeing both the ﬁnancial and opportunity costs, growth can be spurred in higher performing products, facilities can have the capital necessary for expansion, and retailers obtain a greater ability to invest prudently in the rest of the product line. Finally, we arrive at facility operations. Eradicating excess inventory can speed up warehouse operations because space would otherwise be limited, with items having to be continually reslotted based on performance criteria. While warehouse facilities are growing rapidly, there are several forces (e.g. transportation capacity, fuel prices, value-add issues, consolidation/cross docking) which are on the minds of all warehouse managers for getting the most out of warehouse space. In addition to these forces, a critical issue is that retailers are trying to carry just the right amount of inventory for sales, and are therefore pushing inventories back LOGISTICS TIMES November 2010
up the supply chain onto suppliers. This measn that every product line must be readily available for delivery at locations across the globe. The fewer products there are in the system, the easier this task becomes, which is why companies have taken to SKU rationalization and why companies will be more stringent on product introductions in the future.
Some Area of Potential Pushback SKU rationalization while good for the whole can cause some angst within the Sales force. The salesperson’s natural instinct is often a desire to offer 5 ﬂavors instead of 2. They are often compensated based on volume or sales, as opposed to margin. In their minds, reducing the number of potential customer options can threaten their success. It’s important that they are able to offer alternative and potentially more cost effective alternatives and have a deﬁned plan that can be worked with the customer and is integrated with the supply chain. Another beneﬁt to the sales forces is that they will have fewer products to forecast. When rationalizing SKUs, the assumption is that production volume can be maintained by replacing the rationalized volume with more proﬁtable volume. Plant managers, who are often incented on unit cost, will become nervous if volume is cut. They believe that the cut will increase costs for the remaining volume. From a cost accounting perspective, if volume decreases then overhead is allocated to the remaining fewer products, thus increasing cost per unit. It’s important that volume be replaced with more proﬁtable volume, or manufacturing personnel should not be penalized for doing the right thing for the company. Finally, your customer may want to buy a SKU targeted for rationalization as part of the suite that they buy from you. They are interested in one stop shopping and purchase of other higher margin products may be contingent on your being able to supply all of their needs. We have seen this in chemical industries among others. Hopefully, you are not keeping sub-par products for sub-par customers. In the
end, when a business decision is made, the important thing is that a process is in place with the right data such that an informed decision can be made.
Moving Forward New product introductions should be fully considered before being brought to fruition. It is said that the excellence of a supply chain will become the deﬁnitive advantage for companies operating in the decades ahead. Therefore, it is necessary that all ramiﬁcations of product introduction, especially those with regard to potential success and effects on the supply chain, be carefully considered. Only after careful analysis should product introduction be considered. This analysis may include various cost projections, potential direct (sales) and indirect (brand awareness, retail space, slotting revenue) revenue projections, compatibility studies with current products (being careful of cannibalization), and supply chain compatibility and complexity issues. Product introductions should also consider the effect on in-stock rates of all products, IT/facility efﬁciency issues, and transportation limitations. If, in the long term, the product can generate signiﬁcant proﬁt for the company without putting undue stress on the supply chain then it may be a keeper, but if not it should go under serious scrutiny within the context of the principles of product portfolio/ lifecycle management and customer service. As rationalized SKU introductions gain more traction, companies and supply chains alike will begin to experience the beneﬁts of simplicity, efﬁciency, and competitiveness. The Coca Cola Company, Coke Lore, The Real Story of New Coke Harvard Business Review, Don’t Blame The Metrics, Kevin J. Clancy and Randy L. Stone, June 2005 The Origin of Brands: How Product Evolution Creates Endless Possibilities for New Brands, Al Ries, 2005 Industry Week, Failure to Launch, Kill Jusko, Sept. 2007 Marketing Management, SURVIVING Innovation, Kevin Clancy and Peter Krieg, April 2003 WERC Annual Conference, Strategic Trends Inﬂuencing Warehousing, Richard Murphy Jr., May 5th, 2008 Harvard Business Review, What is the Right Supply Chain for Your Product?, Marshall L Fisher, Mar. 1997 Harvard Business Review, A More Rational Approach to New Product Development, Eric Bonabeau, Neil Bodick, Robert W Armstrong, Mar. 2008 WERC Annual Conference, Strategic Trends Inﬂuencing Warehousing, Richard Murphy Jr., May 5th, 2008
Captains of Logistics Conference Drive India Enterprise Solutions Ltd. (DIESL), organised a round table conference in New Delhi on 21st October, 2010. The Conference was part of ‘Captains of Logistics’ - a series of multi city roundtable conferences attended by thought leaders of the industry from respective regions contemplating the various challenges faced in the logistics arena. The roundtable conference was presided over by Sandeep Sharma, Vice President - SCM & Commissary Barista Coffee Company, and the panel included Ajay Chopra, CEO, Drive India Enterprise Solutions Limited (DIESL), Chandramouli, Head of Demand & Supply, DSM Anti- Infectives AMEA and Rohit Sehgal, Vice President, TCS. The conference was attended by Supply Chain & Logistics Heads from over 55 companies including Accenture, ACC Limited, Avon Beauty Products India Pvt. Ltd, Bisleri India, Bilt, Ballarpur Industries Limited, Escorts Construction Equipment Limited, Glaxo Smith Kline, Good Year India Limited, Honda Motor cycles, Mitsubishi Electric, Pepsi Foods, Philips, SKF India.
Logistics University in Germany The Kuhne Logistics University (KLU) opened in Hamburg in September in the presence of logistics entrepreneur Professor Klaus-Michael Kühne, the KLU’s sponsor and initiator, and former member of the Hamburg senate Dr. Wolfgang Peiner, the university’s president. 28 students from around the world, chosen according to strict academic criteria, enrolled in the “MSc Global Logistics” master’s course.
LOGISTICS TIMES November 2010
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LOGISTICS TIMES July 2010
LOGISTICS TIMES July 2010
was rendered speechless when John Samuel posed this question a few weeks ago: “Guess how much it will cost a letter to be delivered in the remotest corner of Sikkim, close to the Chinese border”. Before I could digest the import and impact of what the August 1956 born Indian Postal Service cadre ofﬁcer has uttered, he threw in another googly: “From anywhere in India”. Ooops! Needless to say, there was a long silence from my side. I could ﬁgure out that the guitar-strumming, ex-hockey player at school and college level and a hardcore philatelist was soaking in seeing me tweedling my thumb. Not that I don’t know the answer, but I was sceptical over the accuracy of my proposed response. Simply put, I don’t want to look stupid in front of this commerce graduate from St.Xavier’s College, Tiruchenkodu in southern Tamil Nadu. After all, we hail from the same state. Yes, we have passed out of college in the same year. A bit of an ego issue, no doubt. The saintly Samuel deﬁnitely understood my predicament. Who does not know that the Speedpost service offered by Department of Post and Telegraph accept a letter for delivery from anywhere in India to anywhere in India (again) costs nothing more than Rs.30? Samuel, the 1980 batch Indian Postal Service ofﬁcer chosen by the government to spearhead the Speedpost revolution in India in 1996, watches me closely. “India Post will charge Rs.30,” declares he and pauses for a while. Perhaps he wants me to breathe easily for a while. “But it will cost you nothing less than Rs.25,000 if you approach any other express delivery service provider because they will invariably charge ODA,” adds he.
Reach Factor ODA? What’s that? Samuel quickly moves in to dispel my ignorance. “Outside Delivery Area charges”, explains he. Why? Because none of them have the reach of Samuel’s LOGISTICS TIMES November 2010
Speedpost. What reach he is talking about? “I have 155,500 delivery centres,” pat comes the atomic bomb. How come Speedpost that has commenced its journey hardly 25 years ago has achieved such a phenomenal reach? How stupid I am. How come I have forgotten the fact that Speedpost is a service provided by the 150-year old postal service run by the government of India? So, Samuel is riding on the British legacy. Now everything falls in place: Samuel’s pride. Rather, Speedpost’s crowing
achievement. A lot of things are said even without being uttered when two people meet. But I cannot escape asking the Speedpost’s General Manager-Business Development as to how it is possible to charge such a low tariff ? “One, our wide network. Second, unlike the private operators in this segment we don’t try to cover the entire cost of every single transaction. Nevertheless, we do make proﬁts but less than others,” says Samuel.
amuel & peedpost
Private to Public Fresh out of college, Samuel was focused on getting into civil service. With a degree in commerce, he had taken up chartered accountancy and came out successful. While waiting for an entry into civil service, he joined a multinational to ﬁnetune his ﬁnancial acumen. Once through in 1980, he did the customary stint at Mussorrie training camp for all civil service ofﬁcers before being posting in Kerala managing 250 post ofﬁces under his supervision. After serving in several postal circles across the length and breadth of India, Samuel was asked to pack up and proceed to Bangkok to understand the ramiﬁcations of Express Mail Service (EMS) where he had spent a couple of years for introduction in India. Besides grasping the nuances through lectures and workshops, he crisscrossed the globe to gain ﬁrst hand knowledge. Once back home, he rolled out the Speedpost map. Believe it or not, there is none to match
Speedpost’s reach. Even China boasts of 75,000 delivery centres and USA, just 45,000. On reach, Samuel rates India in the highest bracket; on speed, he places India in the middle. “A long way to go,” he admits. While reach and cost factor is a big plus in this competitive environment, the slow pace of mindset change of people within the organisation has acted as a dampener. “When we discussed business plan within, there were raised eyebrows and many questioned: ‘we are a monopoly. Where is the need for a business plan?’ But today, all of us understand the need for a structured plan and we deploy a huge sales and marketing force,” announces a proud Samuel.
Special Advantage Speedpost uses Pawan Hans to reach out to north east on a regular basis. Given the fact that it is an arm of government, it has greater access to introduce
multimodal: rail, road and air. Thus ensure speedy service. “Can you believe when I say our postman in the remotest north east border reach an address for which the sender has paid less than Rs.10? Maybe in a week, he delivers 5 or 10 letters only,” he poses rhetorically. Another advantage Speedpost enjoys is the easy access to areas where none of his competitors would be permitted entry due to military restrictions. Speedpost items, on the other hand, ride on army vehicles in those restricted areas. Hurray! Samuel’s focus is on technological upgradation to bring in 24x7 monitoring or put it differently: visibility right across. Supply chain visibility? Yes. While full truck load (FTL) business from any point to point is lapped up, less than truckload (LTL) business is what others are hesitant and Samuel is keenly stepping in. He understands the delivery needs of business community and their desire for better and different treatment. His workforce is willing to go an extra mile to bring cheers to the client’s face. “Economy is growing at a faster clip. Services are needed. We are costeffective and reliable,” elaborates he. Project logistics is something Samuel is quietly implementing for many PSUs and global giants like Procter & Gamble and HCL. Recently, Speedpost handled the logistical challenges of handling Census Survey which is a pan-India affair. Slow and steadily Speedpost is spreading its wings through opening a special window in existing stations and wherever possible expanding through additional space. Cold chain is another area of interest. When and how this would transpire? Samuel is tight-lipped at this moment. So much Speedpost does, but very little information dissemination? “We don’t want to blow our own trumpet. It is for others – like you – to do that,” succinctly puts Samuel. You book a parcel/letter in London before 11 a.m. and this gets delivered the same day in many European destinations. Samuel would love to do that here in India. Am sure, we all would lap it up. -Ramesh Kumar LOGISTICS TIMES November 2010
The game is on!
Howard James-Scott Chief SCM Officer Gati Limited
India continues to experience signiﬁcant growth in demand for 3PL and Supply Chain Operators. Their ability to deliver high quality, cost effective services is growing and the market in which they operate is projected to witness a CAGR of around 26% during our forecast period (2011-2013), harvesting total revenue of nearly US$ 4.6 Billion by 2013. Outsourced services, offered by experienced service partners and their allies, can often be a better way of managing supply chain and logistics processes than legacy in-house operations. Continuous improvements in infrastructure and greater focus on core business lend towards the future growth of the Indian 3PL market and relationships will continue to develop as new players come into the market. As India remains some way behind the developed Western economies this fact continues to present opportunities for logistics service and supply chain partnerships and new business ventures. More partnerships and new business ventures are coming that’s for sure. Over 40% of India’s key industry sectors increased logistics outsourcing between 5 & 15% over the past 2 years. Much of this growth has come from greater conﬁdence in the logistics and supply chain partners as much as from the growth in business.
Look what’s happening. AFL goes Global! In the recent past would you have thought that AFL would be the talk of the town around major cities of the world? Think again – AFL has gone global! Commentary is out all around the world on the tie up between Memphis-based FedEx and AFL from Bombay, India! Fantastic. It seems we’re on the global net at last. With Cyrus Guzder, owner, founder and CEO of AFL, remaining as an LOGISTICS TIMES November 2010
advisor this can only be good for the business and the industry sector as a whole. “While our extensive network and logistics infrastructure will enable FedEx to deepen its penetration of the Indian market, I believe AFL’s customers will be excited by the prospects of AFL’s service offering being strengthened under the leadership of a global leader in express delivery and transportation,” said Cyrus Guzder, Chairman of AFL. Furthermore for FedEx this deal will give them a more comprehensive and robust express and domestic ground network throughout the country. “The acquisition supports our long term strategy to grow our international business and better serve our customers seeking to expand or enter the Indian market,” FedEx Express Chief Operating Ofﬁcer Michael Ducker said in a statement on the day the AFLFedEx deal for an undisclosed sum became public. It’s not new either, have a look below: 2004 DHL targets Blue Dart, 2006 Reliance PE targets DTDC courier and cargo, 2007 TNT looks at ARC India, 2006 Gateway Distri Parks takes Snowman, 2007 Nippon Express targets JI Logistics, 2008 Blackstone Group takes All Cargo, 2009 All Cargo moves on Gateway Distri Parks, 2009 India Value Fund targets Innovative B2B Logistics Solutions, 2009 Toll Holdings targets BIC Logistics Ltd, 2010 Reliance ventures into the air with Deccan 360, 2010 Hitachi takes Flyjac. Welcome to the new arena of Logistics and Supply Chain India. The amazing opportunities for this new venture are fantastic and the future is in their hands. What an advantage, Global Local experience rolled into one service offering made from the best ingredients from an International portfolio and knowledge bank and the very special touch of “Incredible India.” What next?
LOGISTICS TIMES July 2010
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LOGISTICS TIMES July 2010