Logistics operations in india

Logistics Operations in Indian Industry

Ankit Kumar MoonkaPGDM-IBTLG2nd Semester,

INDIAN INSTITUTE OF TOURISM & TRAVEL MANAGEMENT

Agenda

Introduction

Inter-relationship between transportation and logistics

Forms of Logistics Operations

Outsourcing of Logistics Activities

Indian Logistics Industry - Growth drivers

Issues in Current status of logistics infrastructure in India

Introduction to Logistics

It is the management of the flow of goodsbetween the point of origin and the point ofconsumption in order to meet somerequirement

It originated out of requirements of militaryservices and was developed to procure, maintainand transport material, personnel and facilities

It is the process of planning, implementing,and controlling the effective and efficient flowof goods and services from the point of origin tothe point of consumption

The logistics cost of company is estimated to bearound 2% of its sales

Types of logistics:- Inbound Logistics: It concentrates on

purchasing and arranging the inboundmovement of materials, parts, and/orfinished inventory from suppliers tomanufacturing or assembly plants,warehouses, or retail stores

Outbound Logistics: It is related to thestorage and movement of the final productand the related information flows from theend of the production line to the end user

Council of Logistics Management (1991) defined that logistics is

‘part of the supply chain process that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements’

• Logistics:• the entire process of materials and products moving into, through, and out

of firm

• Supply-chain management • larger than logistics• links logistics more directly with the user’s total communications network

and with the firm’s engineering staff

• Logistics is Customer-oriented operation management

Definitions

• 3 closely linked components: Logistics services, Information Systems and Infrastructure/Resources

• Logistics services comprise physical activities and non-physical activities

• Information systems provide essential data and consultation in each step

• Infrastructure comprises humanresources, financial resources, packaging materials, warehouses, transport and communications

Components of Logistics System

Business Logistics

It is defined as “having the right item in the right quantity atthe right time at the right place for the right price in the rightcondition to the right customer”

The main functions of a qualified logistician includeinventory management, purchasing, transportation,warehousing, consultation, and the organizing andplanning of these activities

The nodes of a distribution network include:- Factories where products are manufactured or

assembled A depot or deposit is a standard type of warehouse

thought for storing merchandise (high level ofinventory).

Distribution centers are thought for orderprocessing and order fulfilment (lower level ofinventory) and also for receiving returning items fromclients.

Transit points are built for cross docking activities,which consist in reassembling cargo units based ondeliveries scheduled (only moving merchandise).

Traditional retail stores of the Mom and Pop variety,modern supermarkets, hypermarkets, discount storesor also voluntary chains, consumer cooperative,groups of consumer with collective buying power.Note that subsidiaries will be mostly owned byanother company and franchisers, although usingother company brands, actually own the point of sale

Forms of Logistics Operations

• It is a concept for handling production procedures in broad sense

• It can be divided into three main activities: purchase, manufacture and transport

• Information flow is an important system which links the whole supply chain from supplier and manufacturer to consumer

• Unimpeded information flow could lead increase operation accuracy and promote competitiveness

• Product flow proceeds through the production process

Supply Chain Management

• It has developed rapidly to provide industry competitiveness, promoting customer service and resources recycling

• Two main reasons for rise of reverse logistics:• Globalization of markets

• Policies for environment protection

• It could help improve the service levels of companies and reduce the costs of producing processes

• More and more companies want to build their reverse logistics systems, but limited by professional knowledge on logistics management

• Thus third-party logistics service provides an option to small to mid-size companies

Reverse Logistics

• It plays an important role in international freight

• It is cheap and has high carrying capacity, vital for transportation of particular goods such as crude oil and grains

• It takes longer time and strongly affected by weather

Maritime Logistics

Operation of maritime industry is of three main types

Liner Shipping: The business is based on the same ships, routes, price and regular voyages

Tramp Shipping: It has irregular transport prices, unsteady transport routes and schedules. Usually delivers goods like dry bulk cargo and crude oil

Industry Shipping: Its main purpose is to ensure supply of raw materials. Hence, it sometimes needs specialized containers, such as high-pressure containers for natural gas

• It extends the delivery services for air and maritime from airports and seas

• Main transport modes are railway transport, road freight transport and pipeline transport

Land Logistics

Railway transportAdvantages - High carrying capacity, lower influence by weather conditions, lower energy consumption

Disadvantages - High cost of essential facilities, difficult and expensive maintenance, lack of elasticity of urgent demands, and time consumption in organizing railway carriages

Road transportAdvantages - cheaper investment funds, high accessibility, mobility and availability

Disadvantages - low capacity, lower safety, and slow speed

Pipeline transportAdvantages - highcapacity, less effect by weather conditions, cheaper operation fee, and continuous conveyance

Disadvantages - expensive infrastructures, harder supervision, goods specialization, and regular maintenance needs

To improve the land transport in efficiency and reliability, a revolution of transport policies and management is

required, e.g. pricing

• It provides the delivery with speed, lower risk of damage, security, flexibility, accessibility and good frequency for regular destinations

• Its disadvantage is high delivery fee

• Research data show that the freight transport market keeps growing

• Future pattern of air freight logistics is cooperative with other transport modes, to provide a service base on Just-In-Time, and door-to-door

Air Freight Logistics

Express Delivery

• It involves more frequent delivery of materials, at the right time and at the right place in the production process

• The characteristics of express delivery are: – door-to-door service– Efficiency– Traceability– Just-In-Time (JIT)– Growing various delivery demands

• It is the future trend of business

• It brings many benefits for both companies and consumers: • It expands the market area from regional to global

• It uses electronic techniques instead of traditional paper works, which promotes the industries’ efficiency and competitiveness

• It will impact on transport system due to the increased trips

• It might reduce the number of warehouses and the stock cost. Therefore the prices could be lowered

• New concerns such as internet security, transport impacts and door-to-door services should be addressed

• A healthy and successful e-commerce environment is determined by the optimal logistics operation

E-Commerce

Outsourcing of Logistics Activities

• Efficiency in logistics activities indispensable to effective business operations

• Globalization driving higher level of complexity in logistics network

• Importance of distribution and transportation in maintaining sustainable competitive advantage

• Companies seeking to concentrate on core activities

Need for Outsourcing

• Advantages of 3PL operators• Greater expertise• Flexibility for wide geography• Lower operating costs• Better quality of service

• Outsourcing to 3PL has followed two trends• Increasing range of services outsourced• Increasing volume of traffic outsourced

• Key challenge for 3PL operators – Overcoming client’s concerns about relinquishing control

• Outsourcing of logistics is expected to increase

3PL – Third Party Logistics

• Assembles and manages resources, capabilities and technologies of own organization with those of complementary service providers

• “Best of breed” approach

• Creates unique and comprehensive logistics solutions that cannot be achieved by any single provider

• Complete solution; Centralized point of contact

4PL – Third Party Logistics

Transportation in

LogisticsThe Interrelation Between Transportation and Logistics

Transportation in Logistics

Cargo, i.e. merchandise being transported, canbe moved through a variety of transportationmeans and is organized in different shipmentcategories

Unit loads are usually assembled into higherstandardized units such as: ISO containers,swap bodies or semi-trailers

For very long distances, producttransportation will likely benefit from usingdifferent transportation means: multimodaltransport, intermodal transport (no handling)and combined transport (minimal roadtransport)

Operators involved in transportation include:all train, road vehicles, boats, airplanescompanies, couriers, freight forwarders andmulti-modal transport operators

Merchandise being transported internationallyis usually subject to the Incoterms standardsissued by the International Chamber ofCommerce

• One-third to two-thirds of the expenses of enterprises’ logistics costs are spent on transportation

• National Council of Physical Distribution Management (NCPDM), estimates the cost of transportation, on average, accounted for 6.5% of market revenue and 44% of logistics costs

• Components of logistics costs based on the estimation from Air Transportation Association show that transportation occupies 29.4% of logistics costs

• Transport affects the results of logistics activities and influences production and sale

• Improvement of higher operation costs can get better effects, therefore logistics manager must comprehend transport operation thoroughly

Transport Costs and Goods Characters in Logistics

• It is more complex than carrying goods for the proprietors

• Needs high quality management

• With a well-handled transport system goods can be sent to the right place at the right time in order to satisfy the customer’s demands

• It brings efficacy and bridges the gap between producers and consumers

• A good transport system brings benefits not only to service quality but also to the company competitiveness

Role of Transportation in Service Quality

Growth Drivers and

Challenges

The Status of logistics operations in India

Growth Drivers

• Acceleration in industrial production and consumption

• Population growth; Expanding upper-middle and middle classes

• Expected growth: 15-20% per annum

• Heavy outsourcing by automobile/telecom etc. – Demand for focused Supply Chain services

• Change in tax system (VAT to GST) – Should create national market for many goods and services

• Entry of MNCs in various sectors

Logistics infrastructure lags behind global peers

• Planned investment cannot support 2.5 fold expected increase in traffic by 2020• Current freight infrastructure – Networks built before independence

Railways- Over 80% of current network built before

independence- 1951-2007: 10 fold growth in traffic; 1.4 fold

growth in track length

Roadways- 200 fold traffic growth; 8 fold

increase in track length- Highways – Only 15%; Two/Four

lanes – 0.5%- Paved road density –

940km/1000sq.km; Japan – 21000 km, UK – 7050 km

- Highways are structurally inadequate

Waterways- Limited investments after independence- Loss of key routes following partition

Challenges in Indian Logistics

Transport in India: Game Changers (1 of 4)

Emergence of new cargo centres:Opportunities in the air cargo sector nowextend to Tier-II cities as well. Tier-II hubshave witnessed a growth of 14.5% in aircargo volumes between 2006 and 2011.Rising local demand, improved internationalconnectivity and resulting consolidationactivity, and expanding cargo-handlinginfrastructure are the key drivers ofincreased freight handling at Tier-II cityairports

Air: The quickest possible way!

Improving air cargo infrastructure atairports and more investments: ThoughIndia currently lags behind its global peers,increased spending in airportinfrastructure through various airportprojects is expected to improve air cargoinfrastructure across the country. Investmentin airport infrastructure has grownsubstantially over the last 3 Five-Year plans


Growth of Non-Major Ports: With a CAGRgrowth of 13% from 2007-08 to 2011-12(compared to 2% for Major Ports), Non-Majorports have captured nearly 40% of the volumeof trade carried out by sea. Capacity overruns atmajor ports, aided by a substantial increase inthe cargo traffic of fertilizers, building materialand coal, have resulted in significantinvestments in the development of non-majorports. Mundra, Pipavav and Hazira ports are thefrontrunners

Ports: The Gateways to India

Emergence of East-Coast Ports: WithChina’s emergence as India’s leading tradepartner, India’s ‘Look East’ policy andovercapacity at west coast ports, east coastports present significant developmentopportunities. Non-major ports areexpected to contribute 57 % of totalinvestments in east-coast ports

CAGR – compound annual growth rate


Dedicated Freight Corridors: It is expected tomark a paradigm shift in the transportationscenario, resulting from the segregation of freighton trunk routes, improving service delivery andgenerating additional freight-carrying capacity.There will be a reduction in unit cost oftransportation, guaranteed transit time andimproved service quality for a very focussedoverall approach

Rail: India’s Lifeline

Development of National Highways: Toencourage private players, the Governmenthas announced several incentives such asdeclaring the road sector as an industry,providing 100% tax exemptions in anyconsecutive 10 years out of 20 years, dutyfree imports of certain identifiedconstruction plants and equipment, FDI ofup to 100%, and increased concessionperiods

Road: For Last-Mile Connectivity


The desired ‘tobe’ state wouldbe an overlay oftransportationnetworks,allowing for theefficienttransportationof eachcommodity typeas well as anaturalhandoverpoint — wherenetworksintersect andwhere largequantities arebroken downinto smallervolumes forlast-miletransportationinto urbancenters

Logistics flows are highly concentrated

• 7 corridors connect 15 high growth clusters• These 7 corridors account for 50% of freight traffic• These clusters are expected to account for 60% of GDP growth in next 10 years


India’s freight traffic relies excessively on roads

• This is despite the fact that 2/3rds of freight travel being more suitable for rail and waterways• 65% is bulk; 75% transported over distances more than 400km• Roads are cheapest only for non-bulk and <400 km• Over reliance on roads leads to increased costs, high energy consumption and adversely impacts environmentReasonsRailways: Oversaturation of important networks, high tariffs, poor terminal quality, less flexibility of wagons, uncertain transit timesWaterways: High turnaround times at ports, inadequate depths at ports, inadequate infrastructure for Coastal Shipping

- Rail/Waterways potentially cheaper than roads


Inefficiencies leading to $45 billion each year

• India’s spend as percentage of GDP is 13%, higher than that of US

• This is despite the fact that cost of labor is significantly lesser in India

• Road transport is 30 per cent more expensive in India• Rail and Waterways are 70 per cent more expensive in

India• Transit times are higher owing to lower average speeds- Causes: Waiting times at toll stations, freeze in truck traffic

during day, port turnaround times, low priority accorded to freight trains, poor track infrastructure

• Poor transportation equipment is also a major problem• 65% of inefficiencies are hidden


Transport in India: All’s Not Well!

Important rail networks are over-saturated Rail tariffs are quite high: Indian Railways

subsidizes passenger tariff at the expense offreight tariff, resulting in Indian rail freight ratesbeing amongst the highest in the world

Long and uncertain transit times Less flexibility in carrying different types of

goods: This is due to the unavailability ofspecialized wagons for each type of product

Rail

Inadequate Road Network Coverage: NationalHighways constitute just 2% of the Indian roadnetwork, but carry 40% of the total traffic, resultingin severe congestion

Poor road quality High level of fragmentation of the trucking

industry: This leads to fierce competition, resultingin truck owners trying to overload to recover theirinvestments

Multiple check-points result in unnecessarydelays

Road

High Turnaround times: This is because of thecongestion on berths and slow evacuation ofcargo which are unloaded at the berths

Inadequate depth at the ports: Depth at manyIndian ports is inadequate, resulting in manylarge vessels choosing not to dock at Indian ports

Coastal shipping is yet to take off: Inadequateport and land infrastructure and a non-favourabletax regime has inhibited the growth of this sector

Higher waiting times, high fuel costs andtariffs negatively impact the air freight sector

Ports and Air Freight

Key Company Profiles

Year of Establishment: 1988 Year of Operation: 1989 Holding Pattern: MOR – 63%,

Public FIIs 37% Listed Company: NSE and BSE Status: Schedule A Mini Ratna Network Strength: 61 ICDs/CFS

• EXIM Pure: 17• Domestic Pure: 12• Combined: 32

Logistics Support to EXIM(Export/Import) and domestictraffic

Coordinate containerizedrailway movements acrosscountry

Provide warehousing facilities Design, construct and operate

ICDs Operates port terminals

collaborating withInternational Port Operators

Significant player in multimodal transport services

CONCOR Functions

Rail Freight: Container Corporation of India

Overview

Cargo Carrier

Terminal Operator

Warehouse Operator

Core Business

Regional Distribution

North India: 19 South India: 14 West India: 14 East India: 09 Central India: 05 Total: 61

CONCOR Services

Train Handling Container Stacking Customs clearance of

Import/Export cargos Warehousing of

Cargo (transit, multi-stack, air)

Value Added Services Door to Door

Solutions

Movable Asset Details

No of rakes – 240 Wagons – 10,777 Containers – 15,579 Gantry Cranes – 14 Reach Stackers - 60

Important Projects

ICD, Dadri (Noida) ICD,Tughlakabad(Delhi) ICD, Whitefield (B’lore)


Business Trends Turnover

Container Traffic Trends (MT of container traffic)

2009-10 2010-11

Carried by IR 34.36 36.86

Carried by CONCOR 26.60 27.75

%ge share of IR Traffic 77.4% 75.28%

Carried by other CTOs 7.76 9.11

%ge share of IR Traffic 22.59% 24.72%

IT Systems

VSAT based network extended over 64 locations Web Enabled Customer Feedback Facility for e-filing of documents Terminal Management Systems for

• EXIM (ETMS, CCLS)• Domestic (DTMS)• ERP for Finance (Oracle Financials)• Data Warehouse for commercial applications

IT Applications

Container Repair System, Track &Trace System Online Vigilance Clearance System


Strategic Vision

Continue to be leading player in India for railbased inter-modal services

Be the leading “third party logistics” serviceprovider of India

Integrate rail, road, sea and air cargo logisticsand operate multimodal cargo hubs in India

Extend operations in foreign countries andemerge in league of international operators

Future Roadmap

Certifications and Awards

ISO 9000 Quality System Certification MOU Excellence Awards from FY’05 to

FY’09 Dun and Bradstreet Corporate Award –

2008, 2009, 2010 Accredited with “AAA” rating by CARE –

Best Credit Quality, Highest Safety forTimely Debt Service Obligation

Ranking

Turnover Net Profit

Overall 161 85

Transport and Logistics Sector

3 1

(source: Economic Times, 2011)

3. Network

1. Market Position

Started as ‘One Man, OneOffice, One Truck’ companyin 1958

Leading integrated supplychain and logistics solutionprovider

Listed on both NSE and BSE

Road Freight: Transport Corporation of India

2. Operations

Fleet of 7000 trucks/trailers/ reefer vehicles

Fleet of 4 cargo ships 9.75 mn sq ft of warehousing

space Skilled workforce of 6500

with 20,000 outsourcedpositions

Own offices in 6 countries

5. IT

In-house ERP: EDI Capable Web based Track and Trace

through GPS

Pan India Network 1400 company owned

branches nationwide,covering 99.45% of GDP

Covers 17,000 locationswithin India and abroad

Transporting 2.5% byvalue of India’s GDP

4. Divisions

TCI Freight TCI XPS TCI Suply Chain Solutions TCI Seaways TCI Global

4.1 TCI Freight

Largest Division 2400 trucks and trailers

4.2 TCI XPS

Express door to door servicefor time sensitive and highvalue items

4.3 TCI SCS

Logistics solutions provider Customized fleet of 1100 own

trucks including 38refrigerated trucks

Auto sector -70% revenue JV with Mitsui, Japan

4.4 TCI Seaways

Coastal shipping services Net Capacity: 15634 DWT

4.5 TCI Global

Establish subsidiaries globally Indonesia, Brazil and Nigeria

Year of commencement: 1983 Territories Serviced: 220+ Domestic Locations Serviced:

32,000+ Air Support: 7 Air Network Stations: 7 2011 Annual Shipments (mn):

100 2011 Annual Tonnage (‘000):

423 Workforce: 8,000+ Retail Outlets: 486

Proprietary AviationNetwork: First scheduledcargo airline with dedicatedfleet of freighters andinfrastructure support

Market Leading TransitTimes: Fastest deliveriesacross B2B, B2C, C2B and C2Cchannels

Innovator: 28+ years andnumerous industry firsts

Airport-to-Airport

Interline Services

Charter Services

Co-Load

India Post

Air Freight Services Delivering Leadership

Advanced Technology

Weight Dimension Labeling(WDL)

Hand Held Device (OTM) Ground Technical Support (GPS) Smart Truck RFID

Air Freight: BlueDart Aviation Ltd.

Established on 2nd October, 1961 Fleet includes Bulk carriers, Crude oil tankers,

Product tankers, Container vessels, Passenger-cum-Cargo vessels, Chemical carriers andOffshore Supply Vessels

Operates 1/3rd of the Indian tonnage Services Provided: Break-bulk services,

international container services, liquid/drybulk services, offshore & passenger services

Total Ships: 74

Major Clients

Indian Oil Corporation Ltd. Bharat Heavy Electricals Ltd. Steel Authority of India Ltd. Oil & Natural Gas Corporation Ltd. Reliance Industries Ltd. Bharat Petroleum Corporation Limited Hindustan Petroleum Corporation Ltd. British Petroleum British Gas

Dry Bulk

• Growing at 6.4%

Crude Oil

• Growing at 3.8%

Products

• Growing at 2.3%

3 Segments of SCI: Growth Rate

Sea: Shipping Corporation of India

Increase investment in railways by reallocatingfrom roads

Creating enablers to maximize efficiency,logistics parks, standardized containers etc.

Improve rail and road maintenance andexisting equipment

If current trends prevail, inefficienciesassociated with poor logistics infrastructurewill increase from $45 billion today to $140billion in 2020. However, a well-plannedinfrastructure program could help India cutthis waste by half and transportation fuelrequirements by 15 to 20 percent.

Projections

The Way Forward

• Change in modal mix• Increase investment in railways by reallocating from roads

• Building the right networks to support modal mix change

• Building Rail DFCs, Expressways, Coastal corridors, last mile links

• Creating enablers to maximize efficiency – Logistics parks, standardized containers, IT assets, human resource etc.

• Improve rail and road maintenance and existing equipment

• Formulating and implementing a national logistics policy

The Way Forward (Contd.)

Thank You!

Logistics Operations in Indian Industry

INDIAN INSTITUTE OF TOURISM & TRAVEL MANAGEMENT

Education

Logistics operations in india