Focus

www.InfrastructureToday.co.in54  Infrastructure Today June 2013

From a cost to a value-addImproving efciency, reliability, exibility and innovation should be

the focus of our slow-growth, high-demand logistics systems,

 writes Vivek Kumar.

AnAlysis

The importance o an ecient logistics operation isnow well recognised by the Indian industry.However, a ormalised and structure approach to

logistics is a recent phenomenon. As manuacturingprocesses become more complex, the customers becomemore widespread and demanding and the competitionbecomes more intensied, the need or a plannedapproach to logistics is increasingly being recognised.

While the need or ecient logistics is accepted,India as an economy has a lot o ground to cover. TheWorld Bank Logistics Perormance Index (LPI) 2012report ranks India at 46 behind China, Brazil, Thailandand a number o emerging economies. The low rankingclearly outlines the need to improve the logisticsnetworks in the country signicantly, not just in terms o its physical inrastructure but also in terms o itsprocesses, skills and capabilities in order or India tomaintain and grow its global competitiveness.

The chAllenges

The challenges or logistics industry in India areboth external and internal. The issues o inadequatephysical inrastructure, complex indirect tax regime,

cumbersome regulatory procedures, multiple legislationsand a lack o a national logistics agenda creating abottleneck or the growth o the country are wellrecognised. These would need to be dealt with on apriority basis i the Indian economy has to maintain ahigh growth trajectory. India can perhaps take a lea outo Morocco’s approach which has seen its LPI rankingimprove rom 113 in 2007 to 50 in 2012.

The logistics industry itsel needs to respond to alarge number o internal challenges. The manuacturingprocess has increased in complexity due to increase inproduct variants, shorter product cycles and widespreadsupplier and customer base spread across multiplegeographies. The distribution channels have increasedand grown maniold along with emergence o newchannels like modern retail and e-commerce.

In order to remain competitive, companies need toconstantly improve their speed o service and increasereliability o their service delivery. These changes areputting unprecedented amount o pressure on theexisting logistics networks. The logistics industry isurther constrained by lack o an adequate pool o trained manpower.

The logistics service providers (LSPs) have emergedas solution providers in the developed markets. However,the Indian LSPs have yet to reach the scale to providestrong solutions or the Indian industry’s logistics needs.Most o the logistics service providers are small, witheven the largest LSPs big enough to be counted onlyamong mid-sized corporate. The scale limits the abilityo the LSPs to provide services across regions or invest inassets. In turn, this limits their ability to provide end-to-end solutions to their clients who have to depend onmultiple service providers and maintain large in-houseteams to meet their requirements.

significAnT progress in recenT yeArs

While the challenges on the logistics ront remaindaunting, the Indian industry has taken a lot o initiatives and shown considerable progress in recentyears in logistics management. While the externalchallenges are to being dealt at the policy andgovernment level, the industry has also taken steps tomeet the internal challenges.LSPs have emerged as solution providers in the developed markets.

 

Focus

www.InfrastructureToday.co.in June 2013 Infrastructure Today  55

A major step has been the recognition o thechallenge and the need to deal with the challenge in anintegrated manner. An indication o this is appointmentso dedicated senior level resources in most companies ormanaging logistics and supply chain operations. Thesegrowth-oriented companies realise the need to co-ordinate their manuacturing, sales, nance and otheroperations with logistics operations. Some companieshave gone a step urther and integrated their systemswith that o their supplier and customers so that enableseamless fow o inormation and acilitate a asterresponse time.

For outsourcing contracts, aspects o service qualityare getting into the consideration. The typical requestsor quotation (RFQs) now require service providers tohave strong systems capability, ability to track goodsmovement and provide or penalties on shortall inservice requirements. While the direct cost o servicesremains the most important and the driving parameteror decision making, the considerations to otheractors in the logistics decision making process is apositive trend.

The adoption o modern management techniqueslike lean manuacturing, total quality management, andjust-in-time inventory management has brought out theneed to look at the dierent aspects o operations,including logistics operations, in an integrated ashion.However, implementation o such practices has beenlimited to automotive and a ew other industries.

The Indian industry has signicantly invested innew technologies. These include tools like inormationtechnology, communication technology, bar-codingand other such technology or managing logisticsoperations as also investment in better vehicle, ware-houses, and material handing equipment. These invest-ments have helped increase the capability o the industryand improve the eciency o logistics services orthe industry.

considerAble improvemenT required

A logistics network needs to address therequirements o eciency, reliability, fexibility andinnovation. While looking at eciency, not only directcosts but indirect costs and opportunity costs need tobe considered or a proper evaluation. The element o innovation is important as requirement changeswith time and it is necessary or a network to adapt tothe requirements.

The logistics industry needs to make considerableimprovements in respect o all the our parameters. Thedirect costs are typically higher due to greater relianceon road transport versus other cheaper modes like rail orroad. In addition, there are indirect costs due to wastage,time lost in transit, slow speed o movement etc, makethe cost o logistics in the country go up signicantly

The author is Associate Director, Transport &

Logistics Practice, CRISIL Infrastructure Advisory.

and pulling down the eciency o operations. Theactors aecting the eciency also have a bearing on thereliability o the logistics network. The adaptability o the logistics network is limited due to the presence o multiple bottlenecks restricting the ability o thenetwork to react in a short time rame.

The industry has shown considerable capability toinnovate and adapt to the ast changing requirements,however, the same would need to be enhanced asadaptation to uture changes would continue to berequired in the uture.

While some segments like automotive logistics maybe in better condition, and individual companies may bein a relative better position, considerable progress needsto be made by the industry as a whole.

 WAy forWArd

The potential or demand growth or the industrycontinues to hold well, though there are short-termconcerns. The external challenges are expected to beresolved only in the medium term. Thereore, theindustry has to ocus on internal challenges to improvethe overall perormance. However, given the trackrecord o the industry in the past, the level o on-goingactivities and the competitive orces, the logisticsmanagement in the country is expected to witness amajor change in the next ve years.

The industry will adopt better processes and usetechnology more extensively in its pursuit o betterperormance. The Goods and Service Tax (GST),when it is passed, is expected to provide a strongimpetus to trade, increase demand or the industry,acilitate scaled up operation and prepare the groundor consolidation in the industry. The GST thus isexpected to be a major game change or the logisticsindustry. While the cost element will continue to bemost important metric, the industry will have also toview logistics rom a value-added perspective. Themovement towards an integrated and structuredapproach to logistics management is expected to onlyget stronger in the coming years. IT

The Indian logistics service providershave yet to reach the scale to providestrong solutions for the Indian industry’slogistics needs.