Monday, June 16, 2014
INDIA TRANSPORT & LOGISTICS
Manufacturing companies cut costs and inefficiencies by shifting to alternative modes of transport or non-peak hour product movement
A poor road network, and lack of warehousing facilities and alternative modes of transport have led to an escalation of costs, and forced companies to rework their processes. Photo: Ramesh Pathania/Mint
Mumbai: When the roads are clogged, move by night. Better still, switch to trains, or a ship leaving for your destination. When possible, let the logistics person help with sales planning.
Companies which have always transported goods across long distances along congested roads, without enough warehouses and alternative modes of transport, are reworking their logistics processes in an attempt to reduce inefficiencies and cut costs.
The results are showing.
In 2008, the concrete business unit of India’s second largest cement maker ACC Ltd was plagued by losses, when it initiated an overhaul of its transport and logistics processes. The changes led to a turnaround in the unit by 2011-12. In 2013-14, the unit reported a Rs.33.17 crore profit.
ACC’s manufactured concrete must reach clients in three to four hours. Even an hour’s delay can make it unusable. The company installed tracking devices based on the global positioning system (GPS) in its truck fleet to check delays on the road.
“This helped us see if the drivers were using longer routes or taking prolonged halts during delivery hours,” said Anil K. Banchhor, chief executive, concrete business, ACC.
The company also shifted most of its cargo transport to night time, when there are fewer vehicles on the road. Together, the efforts led to 15-20% lower logistics costs.
A McKinsey study in 2012 estimated the annual cost of India’s logistics inefficiencies at $45 billion from 2012 to 2020. A 2.5-times growth in freight traffic by 2020 (compared with 2010 levels) will put further stress on India’s infrastructure, it said.
Manufacturing companies, which spend heavily on logistics, have been keen to reduce inefficiencies.
Godrej Industries Ltd, Essar Ports Ltd, GlaxoSmithKline Pharmaceuticals Ltd, and the Food Corp. of India (FCI) too have revisited their processes, achieving significant benefits.
Most of the goods handled by Essar Ports in Nhava Sheva near Mumbai come from the Hazira port in Gujarat. Transporting a single twenty-foot equivalent unit (TEU) container from Hazira to Nhava Sheva used to cost the company Rs.20,000. Essar tied up with rival port operator Gujarat Pipavav Port Ltd to transport cargo by sea, reducing cost by Rs.5,000 per container.
It also saved a week’s time in transport, including stuffing, transporting, custom clearing and loading containers onto the ship.
According to Rajiv Agarwal, managing director and chief executive officer, Essar Ports, the company evaluates various modes of transport to reduce costs and inefficiencies.
“Several Indian companies have benefited from the optimization of their warehousing and transport network. Savings have been up to 15-20% of logistics costs, including inventory carrying,” said Manish Saigal, managing director at Alvarez and Marsal Holdings Llc, an advisory firm.
Earlier this year, state-run FCI started moving 20,000 tonnes of rice every month from Kakinada in Andhra Pradesh to Kochi in Kerala via coastal shipping instead of road transport. Unavailability of rakes, congestion on roads and higher costs for road transport had forced FCI’s hand.
Saigal said a large speciality chemical company which was using tanker trucks to transport chemicals like methanol and acetic acid from Gujarat to the National Capital Region had shifted to rail transport, lowering costs and contamination, and eliminating pilferage.
Meanwhile, Godrej Consumer Products Ltd started using night transport to reduce delays. This allowed its Malanpur facility in Madhya Pradesh to work at near-full capacity, following which plans to set up new capacity at Rs.200 crore were deferred.
“Boards will listen to supply chain officers if they can contribute to the revenue, profit and cash flow,” said Rakesh Kumar Sinha, chief operating officer, global supply chain, Godrej Consumer Products, who has reconfigured his supply chain and transport structure. “We started taking feedback from the market and ignored forecasting agencies. Now, we can ensure 99% fill rate which is tremendously helping the company,” he said.
Fill rate is the percentage of customers which is satisfied or can be satisfied with the inventory at hand.
GlaxoSmithKline Consumer Healthcare Ltd has gone a step further, with supply chain executives assisting salesmen in forecasting demand. Estimating demand is becoming “10% more precise” with the involvement of supply chain officers, a senior company official said on condition of anonymity.