Achieving Global Competitiveness

INTEGRATED SUPPLY CHAIN NETWORKS

The Indian Logistics Industry

N. Viswanadham

Center For Global Logistics & Manufacturing Strategies

The Logistics Way

Center for Global Logistics and Manufacturing Strategies

Indian School of Business Hyderabad 500032, India

The Indian Geography

Achieving Global Competitiveness

The Logistics Way

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Achieving Global Competitiveness

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Offers A Rich logistics Variety

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Contents
Achieving Global Competitiveness

The Logistics Way

Logistics- Global scenario Advantage India State of Logistics in India Opportunities In India
Manufacturing Agriculture Service Health care Infrastructure building

Conclusions
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Achieving Global Competitiveness

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Logistics: Global Scenario

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Manufacturing : Past and Future

Achieving Global Competitiveness

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Technology has been at the root of the Industry revolution over the last century.
Global Markets and e-Commerce

Global Reach/Global Impact

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Global Manufacturing Network

Information Network Enterprise System or Web-site

Achieving Global Competitiveness

Supply Network Manufacturer

Demand Network

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Supplier Logistics Network

Distributor

Logistics Hub

Supplier

Retailer

Service Network

Service Provider

Financial Network

Banks

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Convergence to Global Manufacturing Networks

Relationship Automation
Paper-based, Human Interface

Achieving Global Competitiveness

Purchasing, Marketing Department CRM, SRM Software-based Relationship Management Agents Assembly Automation WMS, Cell TMS Factory Controllers Machine B2B Controllers Controllers Controllers

Control & Supervision Automation

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Material Flow Automation

GMN
Factory Airport, Floor Seaport, Automation Distribution Centre Automation, ASRS

Marketplace Embedded SC Collaborative SCP

Internet, E-mail, Electronic Marketplaces, LAN, ERP CAD/CAM/CAE

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Information Automation N.Viswanadham

Achieving Global Competitiveness

The Global Business Scenario

Global Customer Global Manufacturing: No Product produced in one country or by one company Outsourcing to LCCs gained pace Vertical Integration to Network of Companies Material, Information and Funds need to moved across continents Competition is defined by efficiency, synchronization, and competencies in the network
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The Logistics Way

The Three Circles

Shares of World GDP, 2004

Achieving Global Competitiveness

Asia Pacific 28.9% (PPP 34.7%) The Logistics Way

North America 31.2% (PPP 26.5%)

Western Europe 28.7% (PPP 21.9%)

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Global Value Chains

Achieving Global Competitiveness

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Information Flows Material Flows

R&D (US)

Raw Materials (Australia)

Manufacturing (China)

Distribution (US, EU, Asia)

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Achieving Global Competitiveness

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Advantage India

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India the 4th largest economy in the world

PPP adjusted GDP of US$3trillion

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(US$ tn) 9.8

10

5.1

3.2

2.9

Source: World Bank

2.1 1.4 1.4 1.4

China

Japan

India

United

Italy

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Advantage India
Achieving Global Competitiveness One quarter of the worlds youth live in India 54% of the Indian population is less than 25 yrs of age 2nd Largest English speaking workforce Focus on Higher Education, Supportive government policies Second largest pool of technically qualified knowledge workers IPR laws in place Developing Industry base

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MNC R&D centers in India

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Germany

Kingdom

United

France

States

IT and R &D are India's Star industries

Achieving Global Competitiveness
There are more IT engineers in Bangalore (150,000) than in Silicon Valley (120,000). McKinsey, predicts that IT services and back-office work in India, will swell fivefold, to a $57 billion annual employing 4 million. General Electric, Microsoft, IBM, Cisco, Intel, General Motors, Astra Zeneca, Motorola , Texas Instruments have R&D centres Biotechnology is a new hot spot. Reliance Life Sciences is recognised by the US National Institutes of Health for stem cell research. The best-known Indian pharma R&D companies Ranbaxy, Dr Reddys Labs, Sun Pharma et al. Revolution spread from Computer software to designintensive manufacturing to R&D
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Achieving Global Competitiveness

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The State of Indian Logistics

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India - Economic Sectors Snapshot

Achieving Global Competitiveness GDP US $ 692 billion [PPP 3.1 Trillion]
10th largest economy and 4th in PPP terms
Contribution to GDP Agriculture Manufacturing Service Work Force Employment

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21% 28% 51%

60% 17% 23%

Logistics costs are 10-20% of GDP

In US it has come down from 15% - 9.8% Very high in developing countries (20% in China)
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Cross-Country Logistics Cost Comparison

Achieving Global Competitiveness Country China, India
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Logistics Cost/GDP
Logistics activities performed by 3rd party /Logistics activities

16-20% 9.9% 10% 11.37%

<10% 57% 30%-40% 80%

US Europe Japan

Potential Savings with Improved Logistics: 10% of GDP This requires growth of 3PLs and 4PLs and use of IT
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Elements of Logistics cost

Achieving Global Competitiveness

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Transportation Inventories Losses Packaging Handling and Warehousing Customers' shopping

35% 25% 14% 11% 9% 6%

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Logistics In Asia Pacific

Achieving Global Competitiveness

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Poor Facilities and Infrastructure Low IT penetration Industry partners limited Excellent Infrastructure Sophisticated capabilities and technology Easier to attract quality labor Supply chain partners Traditional channels Moderate Infrastructure Medium IT penetration With no integration Processes and infrastructure that support collaboration

Accenture: Supply Chains in Asia: Challenges and Opportunities

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Logistics Infrastructure in India

Achieving Global Competitiveness
Logistics involves global movement of materials, information and funds from country to country Requires excellent state of the art country infrastructure airports, sea ports, Internet and other related facilities Indian Infrastructure is poor as compared to developed and developing countries and is rated 54th among the 59 countries
Road : 56/59, Rail: 25/59, Seaport: 51/59, Airport: 40/59

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The underlying institutional problems

Fragmentation and overlapping of responsibilities among various
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government agencies Complexity of international trade documentation process and lack of IT infrastructure Complex tax laws Lack of professionally competent logisticians Industry readiness: weak asset or system management skills
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Roadways
Achieving Global Competitiveness
National Highway Development Project (NHDP), US $13 billion, 1998-2007 . Four/six laning of the highway connecting Bombay, Delhi, Calcutta and Madras North-South and East-West corridors (NS-EW), Kashmir to Kanyakumari and Silchar to Porbandar. The end to end transport process to be optimized by controlling loading densities through packaging and palletizing standards, and loading and unloading facilities automation. Slow speeds, traffic congestion, high wear and tear of vehicles are some of the problems
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Air
Achieving Global Competitiveness
The air cargo consists of express mail, computers, chips, electronics and optical equipment, precision instruments and perishable foodstuffs. The Logistics Way The six major airports carry 88% of the total air cargo Privatization the major airports, airlines is a popular headline

Calcut t a 12% Bangalore 16% Madras 11%

Triva nd rum

1% Bombay 30%

Bangalore 7% Madras 17%

Calcut t a 4%

Trivand rum

4% Bombay 36%

Delhi 30%

Delhi 32%

International air cargo traffic

Domestic air cargo traffic

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Indian Railways
Achieving Global Competitiveness During 2000-01, the IR carried
473.5 million tones of freight Rs23,305 crores ( 69%) 89% of its freight is commodities like coal, fertilizers, cement, petroleum products, food grain, finished steel, iron ore and raw material to steel plants. 4,833 million passengers, Rs 10,515 crores (31%)

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High Density Network (HDN) connecting Bombay, Delhi, Calcutta and Madras
Carries 65% of the total rail freight traffic and 55% of passenger traffic.

Concur is the Flag ship route Freight is moving away from IR although cheaper
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Seaports
Achieving Global Competitiveness
Vast coastline of 7,517 kms handles 95% of foreign trade 12 major ports and 184 other (minor and intermediate) ports Traffic in major ports : 2002-03 - 313 million tonnes Private sector participation is talke about

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Major Port Visakhapatnam Kandla Madras Haldia JNPT* Bombay Paradip Mormugao New Mangalore Tuticorin Cochin Ennore 100106
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Traffic handled (million tonnes) 2002-03 46.00 40.63 33.70 28.55 26.83 26.53 23.93 23.65 21.43 13.30 13.00 8.48 7.20

Calcutta

Third Party logistics players in India

Achieving Global Competitiveness
Market is highly fragmented with large number of small players Rail is state run while truckers are often family-run Complex business environment, eg. tax rates differ between provinces, cultural differences Poor warehousing and transportation infrastructure Foreign logistics competitors are Exel, Danzas, Bax Global, TNT, Panalpina main revenue from freight forwarding

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Logistics market is expected to grow by more than 20% over the next 3 years as against the present rate of 12-15%
Source : Scope, Indian Logistics Industry, January 2002 100106
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Achieving Global Competitiveness

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Opportunities In India

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Opportunities In India Leverage the IT & R &D advantage

Achieving Global Competitiveness It is essential for India to increase its proportion of Global GDP through growth in all the three sectors of the economy Planned or wild, growth is essential and important. This could be through attracting MNCs to India or through Indian companies becoming MNCs and raising funds through NASDAQ or large number of small companies raising capital from international venture sources

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Indias Share of Industry is Very Low

Achieving Global Competitiveness

Vision 2020

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Global Competitiveness in Manufacturing is a National Imperative

Achieving Global Competitiveness 75% of India s working population (600m) has education middle school or below
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Only Labor intensive manufacturing can generate

employment in adequate numbers

Experience of Europe, America, Japan, the Tiger economies, and now China shows that Wealth creation is possible only through International trade oriented manufacturing In China manufacturing sector, constitutes nearly 40% of the GDP.
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Foreign Direct Investment (FDI) in India

Achieving Global Competitiveness FDI is welcome in all the sectors, except for defence, railways and atomic energy FDI inflows : US$ 3.73 billion in 2002-03 and to US$ 3.57 billion in 2003-2004
Amount of FDI Inflows into India (1997-2004) 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0
1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

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B nU $ illio S

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Future Trends in Manufacturing Industry

Achieving Global Competitiveness
Indian component manufacturers will move up the value chain as contract manufacturers
Frost & Sullivan has estimated that the revenue of the logistics

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industry from the manufacturing sector alone was $13.46 billion in 2003, and the market is likely to grow at a rate of 6.2% during the next five years

Strategic location of industries and B2B connectivity to marketplaces The increasing online sales will force e-companies to forge strategic alliance with logistics service providers
India can expect a shift in the retail logistics, B2B procurement

practices and the way the distributions are handled

Adoption of new technologies such as GPS and RFID will take place rapidly

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Industry Supply Chain

Achieving Global Competitiveness
Customer Configured Order

Website
Estimated Time of Delivery

Order Processing System

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Warehouse

Suppliers

Global Transportation & Logistics

Logistics Service Providers Assembler

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Leverage IT In Logistics software Development

Achieving Global Competitiveness
Indian companies can exploit this strength to develop specific capabilities in IT-enabled Logistics

development and management of logistics planning and coordination systems. develop in to 4PL s for global manufacturing and service industries with logistics domain knowledge. develop automated trade systems such as Trade Net and Digital Trade Transportation Network for trade documentation and customs permit applications. Develop Real-time control & Event Management using Radio Frequency Identification Tags (RFID) and WebServices

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KBLP Business Model

Achieving Global Competitiveness
Planning, Coordination and Overall Responsibility

KBLP The Logistics Way

Orders

Customer
Payment

Plans Operational Status

Supplier
Material Flow Execution
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2 & 3 PLs

Contract Manufacturer
Service

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Consumer Spending Habits

Achieving Global Competitiveness

Indian Retail Industry

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Rent , Fuel & P ower 11% T ransport & Communicat ion 13%

Clot hing & Foot wear 5% Food & Beverage 48%

Restriction on FDI Accounts for 8% employment and 13% of GDP Consumer spending has grown at 11.5% per year India ranks 5th amongst 30 emerging retail markets in DCs Top cities for retail growth : Bombay, Delhi, Banglore andPune, smaller cities : Nagpur, Indore, Jaipur, Chandigarh, F&B, groceries, consumer durables and home products are promising sector The organized apparel segment is expected to grow at 9.5% per annum in the next three years
Ot hers 23%

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Farmers- increased income, less middlemen Farmers exposed to Achieving Global Competitiveness
ITC processing facilities Specifications for international

E-Choupals

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markets International quality certification processes Shipment requirements for exports, The documentation and other requirements at the farm level Use of moisture meters and portable electronic weighing machines

ITC trained farmers (Vendor Development) in specific harvesting, processing, grading, and quality standards and provided guidance on export protocols
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e-Choupal

Achieving Global Competitiveness

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The Agri Supply Chain

Achieving Global Competitiveness

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Agriculture provides 30% of GDP and 60% of employment The chain is long and slow
A supply chain study for rice would involve

farmers, seed producers, fertilizer factories, financial institutions, millers, government, warehouses, fair price shops, retail shops, railways, truck transport companies, etc.

Orders of magnitude gains are possible if you apply the Industry supply chain ideas here
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The Agri-Supply Chain -Fertilizers

Achieving Global Competitiveness
Country Warehouse

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Factory

Location of Facilities Inventories Multi-modal Transport

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Regional Warehouse

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Indian Food Service Industry McDonalds- India

Achieving Global Competitiveness The Indian foodservice industry grew by 4.4% in 2004 to reach a value of $4.8 billion. Mcdonalds is one of the successful MNCs in this area
Indianised on several fronts products: Mac Maharaja purchases more than 96% of its supplies from Indian

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suppliers. Restaurants are constructed using local architects contractors, labor and with maximum local content in materials.

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Service Chains Provide Immense Opportunities

Achieving Global Competitiveness Arise in different contexts
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Food processing Health Care Construction Finance Defense Distribution and retail Manufacturing
Returns handling Spare parts and MRO Product Life Cycle Management
Closed loop supply chains

Window of Opportunity

Reverse Logistics
Transportation Containers
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Logistics for Large Infrastructure and Engineering Projects

Achieving Global Competitiveness

India is focusing on infrastructure

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a wave of projects such as the construction of airports, seaports, industrial parks and national highways. These can be completed in time and budget through proper logistics management and coordination of various activities.

Business strategy to develop infrastructure and Industry simultaneously

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Construction SCM Headlines

Achieving Global Competitiveness
In the case studies we observed 8 months observed 1 36 to
from savings ry ruction b Constates $30MM invento Fa el Cuts roach indic Int
ative Conserv app

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r Mapping Helps Uncove SC Inefficiencies

ional Mapping across organizat pipe supports, boundaries for of elapsed contractor discovers 96% is value time is wait time, only 4% add time

Owner enters long-lead sup

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Supply Chain Efforts Cut Lead Time 70%

ply chain, holds inventory
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Health Care Logistics

Achieving Global Competitiveness

Healthcare services involve coordination between multiple parties of doctors, hospitals, pharmacists, medical equipment manufacturers, etc. These interactions and processes are logistics-based. For example, In clinical trials, drugs and patient samples are exchanged between multiple patients and research institutes.
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Coordinate Disease Management

Achieving Global Competitiveness
Networking and Coordination of different players Patients Government Agencies Voluntary Organizations Multi-lingual Call Centers Counseling Information Diagnosis and Monitoring of Patients

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Hospitals

the s ? re ayer RFID tags, Internet e a Research Pl AIDS Management r he ticsInstitutes IT support W is g Clinical Trials Lo
Philanthropists like Microsoft Pharmaceutical Companies

World Health Organization

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Project - Health Care

Achieving Global Competitiveness

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Some Recommendations
Achieving Global Competitiveness
Balanced Investment between IT and Physical Infrastructure Development of selected Vertical Industry Clusters The Logistics Way
Agriculture/Food Cluster Manufacturing Clusters such as Automotive and Pharmaceuticals. Fast Moving Consumer Goods Cluster.

Development of selected Logistics Sectors

Global Interstate Retail

Think Radical: 80% of the products are made for 20% of people
Produce goods for the 80% of population: requires some times

packaging solutions, some times new product development, etc.

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Achieving Global Competitiveness

Thank you
The Logistics Way Center For

Global Logistics & Manufacturing Strategies

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