10/21/2013

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Daniel Castle

Vice President – Operational

Excellence

Tata Quality Management Services

Strategic Success in India

Background on India

• One of the world’s fastest growing economies

• Huge Western influence

• 2nd most populated country

• high demand for products and services

• Vast pool of talented professionals

• English language competency

• Openness towards foreign brands

• However, low competition – relative absence of foreign brands

• Government support towards FDI

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It’s a Mixed Bag

• Changing socio-economic demographics

• State-specific legal and compliance regulations

• Changing demands and rising customer expectations

• Huge distances to be traversed

• High attrition rates in the corporate sector

• Significant political influences

• Bribery and corruption

Logistics Challenges

in India

Infrastructure

Regulations

Fragmented Industry

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Ports Heavy congestion at major ports – higher vessel turnaround time

Inefficient handling

Long waiting time

Airports Congestion at main airports

Inefficient handling resulting in pilferage / damage

High cost of alternate arrangements (prices quoted

by individual loaders)

Railways Choked rail network and resultant lower speeds

Transportation delays and cost overruns

Dedicated freight corridors planned

Roads Do not support the axle weight of the trucks and

cause roads to crack / cave in

Bad road quality – low speeds, accidents

and high maintenance costs of vehicles

Warehousing Very few logistics parks, no space in urban areas, poor maintenance

Infrastructural Challenges

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Logistics Challenges in India

Regulation Challenges

Laws -

various Acts

Land

reforms, Special

Economic Zones

(SEZ), etc.

Bribes/

corruption

Octroi /

Customs

Goods and

Services Tax (GST)

Dominated by unorganized players

Weak vendor management

Non leveraged IT infrastructure

Operational inefficiencies resulting in high operating costs

Presence of operations in risk-prone areas like North East and Jammu

& Kashmir

The Good News is…

• Significant investments have been approved for major infrastructure projects

like the Delhi-Mumbai freight corridor, new railway set-ups, better road

networks and airports

• To increase competence in the sector, the government has introduced private

sector participation, especially in the Ports sector

• In order to liberalize railway services, the government opened its doors of

container business to private parties

• Warehousing Industry moving towards sophistication

• Share of organized retail is expected to increase from 5% (current) to 24% by

2020

• Robust campus recruitment programs both at graduate and post-graduate

levels

• Advanced levels of technology support like Track & Trace, Warehouse- and

Transportation-Management Systems

• Implementation of Goods and Services Tax (GST) expected to be imminent

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In such a scenario, 3PL service providers

may…

• Negotiate and re-negotiate contracts better

• Optimize Loads

• Schedule routes more efficiently

• Implement IT / automated processes

• Save on logistics related communication

• Optimize / reduce Manpower costs

• Etc.

Outsourcing Logistics ..

now a Global Trend

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India vs. USA & China

GDP

Logistics

Cost

(% GDP)

Logistics

Cost

3PL

Revenue

(%

Logistics

Cost)

3PL

Revenue

USA 15,060 8.5% 1,282 10.4% 134

India 1,843 13.0% 240 5.7% 14

China 6,989 18.1% 1,265 7.0% 89

Logistics Cost vs. GDP and

Third Party Logistics Revenues vs. Logistics Cost

(2011 – USD Billion)

Indian logistics vs. other countries

Small Medium Large

Low

Med

ium

Hig

h

Size of Economy

Str

engt

h of

Log

istic

s S

ecto

r

Source: World Bank, KPMG Analysis (2010)

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Decoding the ‘Logistics Outsourcing’DilemmaWhen, where and why does one engage a 3PL Company?

The Supply Chain

Every day we do our best to

manage all this, to keep our

customers and bosses happy.

And everything is in motion, all

the time – inventory, people

and resources

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Supply Chain Management (SCM):

The New Focus Area for the CEO

• Supply chain management is now a hot topic in the board room

• CXOs want to know details about supply chain design

• They are aware of the availability of outsourced partners both on

the supply and order fulfillment sides

• Can supply chain be a strategic enabler?

Wish list of every SCM Head

• Year-on-year reduced operating costs and resources

• More value-adds

• Optimal inventory

• Least loss, scrap and unsold inventory

• Reduction in SCM Costs as a % of Sales

• Stable partner and scalability on demand

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Hidden costs across the supply chain

• CFA-based operations – Sustainability issues

• Blocked capital – Excess pre- and post-production inventory

• Sales returns – Double transportation, packing and

handling unsynchronized transportation and warehouse

management

• Unorganized partner – Low operating costs, long term risks

“To outsource or not to outsource….”

3PL surveys show the most frequently occurring reasons to avoid outsourcing are:

Why do customers hesitate ?

Source: 3PL Annual Survey Report by Capgemini Consulting

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Why should companies outsource

logistics?

AVOID CAPITAL EXPENDITUREREDUCE OPERATING COSTS

FOCUS ON CORE BUSINESS

IMPROVED SERVICE LEVELS

ENHANCED ECONOMIES OF SCALEAVOID LABOUR ISSUES

How outsourcing has helped

companies in India

24.5

35.9

46.1

60.6

68.2

71.3

76

90.6

Reduced capital investment

Expansion into newer regions

Flexibility in operations

Increased inventory turns

Improved return on total assets

Improved customer satisfaction

Focus on Core Competence

Cost Reduction

% of Respondents

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Extent of logistics outsourcing

Prime reasons for logistics outsourcing

1• Avoid capital expenditure

2• Reduce operating costs

3• Increase flexibility (financial/service)

4• Focus on core business

5• Improve service

6• Lack of economies of scale in house

7• Acquire talent

8• Avoid labor issues

Contract Logistics Savings Potential

Service Description Savings Realized

Route design and optimization 10-15%

Closed loop dedicated operations 15%

Mode conversion 10-15%

Core carrier management 5-10%

Rate negotiation and audit 4-5%

Inbound consolidation 20-25%

Reverse logistics 10-15%

Distribution centre (DC) location

realignment10-12%

Reduced inventory 7-10%

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Key factors beyond price

• Scalability and flexibility

• Empowered ground operations

• Planning to address peaks and seasonality

• Simplified technologies for visibility

• Analyzed data for inventory optimization

A journey of > 140 years started in 1868

by Jamshedji Nusserwanji Tata

A tradition of Trust and Principles that puts

People before Profits

upheld by Group Chairmen such as JRD Tata

and RN Tata

THE TATA GROUP

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The group that has shaped the destiny of

India’s Progress

with

Power Telecom Steel Automobiles

THE TATA GROUP

DIESL is India’s leading integrated supply chain solutions provider

More than 165 warehouses across India

With a network connecting 7,000 towns in India

Including a North East presence covering > 85% of India’s districts

Revenues of $ 55 million

With > 4,000 people striving towards excellence

Now brings to the logistics industry the same level of trust that has won over

> 1 billion people

THE TATA GROUP

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Milestones

Leve

ls o

f E

volu

tion

2003-2005

‘Bootstrapping’

Set up Trading business for

Telecom Products with presence

across six States

1

Extended presence to 18 states

with business volumes touching

10 million units

2

Started Warehousing and

Value Added Services

3

2006-2008

‘Scale-up’

Created Pan India Presence and

included Distribution Services

4

Started providing end to end

solutions

5

Achieved ISO certification 9000:2001

6

Crossed Rs. 100 crores in Logistics Business Services

7

2009 onwards

‘Secure the future’

Warehousing capacity exceeds

5 million sq. ft

Achieved Rs. 200 crores in

Logistics Business Services

Castrol Award 2009 for Best CFA

operations, North India

Best 3PL company of the year

2010

Best 3PL company of the year

2011

Customer & Brand Loyalty Award

2011 in Logistics Sector

8

9

11

12

13

10

Supply chains currently managed

• Inbound logistics : Supplier to OEM stores

• Stores management and feeding the production line

• Finished goods management: Stores and open yard

• Outbound logistics: Customer order fulfillment

• Sales returns and reverse logistics

Customer’s

Customer

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Fast moving consumer durables (FMCD) sector –

leading air-conditioner and television brands

3PL:

• Outbound: Factory to regional DC

• Stock management: Regional DC

• Outbound: Regional DC to state DC

• Stock management : State DC

• Outbound: State DC to dealer network

Customer:

• FG inventory on 3PL network

• 30-day inventory across all state DCs

• 100% inventory accuracy

• Sales order fulfillment

• Milk run dealer deliveries

Mobile and Personal Computing – Market Leader

• Imports management

• National warehouse

• Stock transfer

• Regional distribution

• Last mile delivery to dealers

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Supplier Collection and Implant Stores Management

– Auto and Engineering Sectors

• Pre- and post-production inventory control

• Just in time (JIT) – Line feeding

• MHE deployment and maintenance

• SAP trained skilled manpower

• 24x7 operations on demand

SUPPLIER -1

SUPPLIER -2

SUPPLIER - 3

SUPPLIER -4

STORES JUST IN TIME

FINISHED GOODS

DISPATCH

B2C – Order Fulfillment – e-commerce

SUPPLIER -1

SUPPLIER -2

SUPPLIER - 3

SUPPLIER -4

CUSTOMER

� AM / PM order fulfillment within city

� Small parcel network partners

� Asset-free operations for e-commerce sector

� Scalability on demand

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Telecom

Engineering

FMCG

FMCD

Automotive

Project logistics / infrastructure

Focus Sectors

31%

62%

50%

31%

50%

19%

19%

31%

19%

19%

31%

25%

50%

44%

38%

19%

31%

38%

25%

31%

37%

0% 20% 40% 60% 80% 100%

Advanced planning and scheduling software

Transportation management system

Warehouse management system

Network planning /optimization tools

Bar coding

RFID

Distribution requirements planning software

Effectiveness

Technologies / Systems implemented

(Warehousing)

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69%

19%

44%

13%

38%

44%

38%

31%

50%

31%

31%

38%

50%

13%

13%

6%

31%

38%

25%

6%

19%

25%

12%

25%

6%

6%

25%

13%

19%

25%

31%

31%

32%

6%

0% 20% 40% 60% 80% 100%

Formally documented Logistics & Distribution strategy

Collaborative carrier management

Supply chain visibility for managing exceptions

Collaboration and integration among service providers

Differentiated logistics services for discrete customersegments

Formal returns management

Cross-docking / flow-through

Continuous-replenishment programs / management ofinventory for customers

Share real-time, electronic demand / inventory data

EffectivenessLogistics practices implemented

Success stories – International brands

in India

• “Glocalization”, Operational Efficiency

• Product superiority – Investment in invention, product development and manufacturing

• Customer Intimacy – Treating each customer as unique; Delegation to customer facing employees

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Case study:

The customer is a recent entrant to the Indian market.

Product Profile:

Their products range from small general-purpose safes for domestic use to high security

fireproof burglary-resistant safes for the retail, banking and hospitality sectors

Customer Focus Area: After-sales service.

With an all-India distribution network, services such as installation, maintenance and

customer support are provided.

Case study:

Key challenge faced by customer:

To exponentially improve the sales footprint across

India without increasing the sales and distribution

cost. To sell across the country, the customer would

have had to set up exclusive billing teams,

warehouse and secondary distribution channels, etc.

Demand from Indian 3PL:

• Pan India operations

• Integrated warehousing and distribution network

• Strong ERP

• Trustworthy partner

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Case study:Solution offered:

Consignment Sales Model: allowing the customer to easily manage inventory at customer’s geography,

invoicing the eventual consumer only when the product is actually sold

Ownership of these goods remains with the customer

3PL sells the goods on behalf of the customer

In operating terms, the following assistance is provided:

• Primary Distribution to the State warehouse where products would be sold

• Warehousing and Inventory Management

• Solutions, Tax Compliances and Financial Management

• Order Management and Last mile delivery

Case study:Final Outcome:

• Customer now can sell anywhere in the country without actually registering

themselves in each State

• Customer need NOT spend capital and effort to configure inventory in SAP

since the 3PL will handle the invoicing

• With Inventory being closer to customer, the 3PL became a key enabler to

increase speed to order fulfillment

• 3PL will collect the value of the inventory and remit to the customer, which

ensures timely collection

• Since the physical and system processes are already configured by the 3PL,

the customer now can expand anywhere across India

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Outsourcing your logistics is a smart move:

• Allows you to be MORE EFFICIENT and streamline operations

• Requires less capital expenditure and helps control COSTS

• Delivers more finely tuned SUPPLY CHAIN solutions

• Gives you the freedom to FOCUS on core competencies

• Can significantly enhance customer SATISFACTION

Success factors

�Good cultural fit

� Solid reputation

�Prompt, attentive service

�Agility and adaptability

� Lean practices

�Updated technology

�Ability to grow with you

�Geographic desirability

�Competitive pricing

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Thank you!

• questions?

• comments?

Contact information

• Daniel Castle

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Survey

www.tinyurl.com/lc3s3fm