Setting store by technology

It was ironical that eWorld's meeting with TVS Logistics went on schedule in the midst of a major logistics problem facing us that day in Chennai, where the company is based. A procession, coupled with a long queue of visitors to the city (hoping to get face-to-face time with the DMK patriarch and getting an MLA ticket for the forthcoming assembly elections) posed problems for many.

Caught in the traffic for a couple of hours were representatives from Ramco Systems, the technology vendor to TVSL. Before Prince Sudersanam, General Manager, Ramco Systems, joined us, Harinath Chakravarthy, Chief Information Officer, TVSL, fed us some insights into his business.

The group could not afford to grow manpower at the same rate as the business grew in the time. From 40 operating locations in India, with the vehicle fleet making about 300 trips a day, the company has grown to 150 locations and upwards of 1,500 trips a day! Also, it now seeks the capability to identify exactly (through Global Positioning Systems, or GPS) where a certain truck is on its route. Not whether it is near Hosur, but whether it is at Gate 3 or Gate 4 of the car manufacturer!

Information Technology alone, (well, nearly alone), helped TVSL come to these levels of efficiency. But, some history first: The company started in the early nineties. Clients took their time understanding how outsourcing the entire logistics piece to a third-party vendor such as TVSL could benefit them. “There are certain economies of scale in doing this but the skill is becoming more specialised (now). Logistics for the auto industry in India is as mature as elsewhere,” says Chakravarthy.

TVS-L has four verticals: the first is the after-market spares distribution . “We manage the whole warehouse of a customer; improving efficiency, setting up warehouse layouts and doing materials planning.” This happens often where there is high volume of business.

Second: transportation and logistics . Earlier a manufacturer had to depend on lorry owners and brokers to transport the goods. “Our customers wanted us to do more. They wanted us to schedule trips and ensure that suppliers adhered to pick-ups; to bring palettes to the manufacturing facilities.”

Third: line feeding or in-plant warehousing . Any large OEM (such as a big-volume car manufacturer such as Hyundai or Ford) is a typical client. “If you see an i10 or a Ford car rolling out with a employee, the entire supply chain in the backend is with TVSL. We are responsible for certain house-keeping and line-side feeding. We actually have bench strength — the first time I have come across such a thing in a supply-chain company.”

Fourth: material handling, aka supply chain. A logistics player like TVSL needs to move large amounts of palettised material from a warehouse for dispatch. Manufacturing companies don't do that but outsource it to service providers with the required equipment and staff to do it.

(For a detailed outlook on the company's four verticals, please view this article at our Web site.)

What drove the business

In 2003-04, the business improved and the company saw traction. “We had hubs all over to distribute the goods. This brought the cost down. All the customer had to say was that this or that is not happening. We solved the problem.” Earlier TVSL's client had to coordinate with the lorry operator, with the labour ‘or half-a-dozen people' to get things done. “Here it is about capacity — you want to manufacture one car or 100 cars, it becomes our problem to take care of the backend. The headache of the customers and the entire risks come to us as a logistics service provider.”

He adds that logistics warehouses that TVSL provides have dock levellers, gradations and certain levels of steel racking, double deep storage, which are amenable to barcodes and more friendly lighting that helps them operate on three shifts. A subsidiary builds such logistics parks.

Ramco

Ramco Systems came on board five years ago when growth started picking up for TVSL. “We had some home-grown applications but found that it may not be adequate if we scale up. Five years ago, we had 40 operating locations in India. Our fleet used to make 250-300 trips a day. That has scaled up now to 150 locations and upwards of 1,500 trips a day.” That is, more than thrice the number of locations and five times as many trips!

Why Ramco

It took TVSL a while to design the solution. In 2007, they began scouting the market to identify an IT partner. “Most logistics companies abroad had home-built solutions. In India, we wanted to know who could build the solution. Ramco was identified as it was of our size and understood our business. They have a good technology to build the solution on.” With TVSL providing the domain expertise and Ramco bringing in its IT skills, the duo has joint property (intellectual property, or IP) rights over the end product. “The supply chain solution was jointly designed and rolled out in 2009. It includes the entire cycle – from CRM to material placement, vehicle movement, billing and financials.”

One attribute that Chakravarthy says distinguished TVSL from other companies is that “we do not ship a box but take responsibility for what is inside the box. If I take five fasteners and three bolts, we track it at that level — even the proof of delivery and GRNs work at that level. At the parts levels it becomes easier to plan whether it is labour planning; space planning or transportation planning.”

Ramco Systems brought in the technology, the implementation and the design teams. “It was one big package. It took more than 18 months to build the solution.” The launch was done in a phased manner.

But did not TVSL look to a bigger ERP brand? “A bigger ERP vendor in the US or Europe — we looked at all of them,” says Chakravarthy, smiling meaningfully. But at that time given Ramco's flexibility and size, TVSL thought they were the best fit. “If I wanted to quickly customise the framework and the design, what was the platform? Ramco had the best application and the platform. Whatever happens in the platform, it is easy to customise. That helps us a lot. For instance, if we want to build touch-screen interfaces or new interfaces to work in a certain type of context I need an extreme level of flexibility.”

How does the application work?

“Let's start with freight,” he says enthusiastically. An auto manufacturer wants to manufacture a certain product mix today — a car of type x and y; the bill of material is shared with the logistics-provider.

If two cars are to be manufactured today, that means at least two batteries have to be supplied. The logistics vendor knows which suppliers are going to supply those. “Armed with the national pick-up plan from the vendors along with their window-times, I now know that this particular truck is to arrive at this hour. So we are ready with this material.”

There are five auto clusters in India — Gurgaon, Pune, Chennai, Hosur and Jamshedpur. TVSL has ‘milk-run' vehicles to pick up material and bring it to the hubs. Here, a trailer picks up the material to be delivered to the client directly or to the local hub. The hub stores it till it is later distributed to the client. The route starting point is scheduled. “We also do a weekly schedule. Most of this data comes electronically and after processing, the message is sent to each region, which plans accordingly. Some of it is pre-planned but at times there is some last-minute planning during the harvest season.”

GPS

Communicating with trucks in transit is also critical for TVSL. “In a local run of 100-200 km, it is absolutely necessary to have a Global Positioning System (GPS) to track vehicles.” TVSL cannot afford to merely guess where the vehicle is located. “We should be able to locate it at, say, the manufacturers' or suppliers' premise at gate number three or four. If it has been made to wait for too long at one point, then we reroute it. We need a lot more accuracy. We have not rolled this out fully.”

And in many instances, it is not adequate to have just a GPS device. TVSL needs it to have additional software that identifies the routes. “Since we know the supplier, we identify the route so that the truck can get there in pre-specified transit time, and a window time. A truck should not be there for over two hours to load the materials.” The company needs to know exactly which supplier has the vehicle, and how long the vehicle takes to unload the materials; it also needs to identify which vehicle is placed in which dock and for how many hours it has been waiting. “These guys make five to six trips a day. We need to see where the bottlenecks are. The more you focus on that, the more value you can squeeze out of them.”

Resistance from drivers?

Sure, TVSL has faced this. “But, for some of the local daily runs the vehicles do not change much. They are engaged for a month or a quarter, and this helps us. The rates they get are also on the premium side as we need reliable vehicles and reliable drivers.” The drivers, too, are quite comfortable picking up the boxes. They are able to communicate to TVSL with a certain level of depth and accuracy. For instance, it is not uncommon for them to convey that they picked up the wedges today but not the fasteners. “They are smart enough to distinguish at that level.”

The next challenge for Chakravarthy is to speed up information-gathering. “It is only when the vehicle returns to the hub do we know that the customer gave us this schedule to work on but the collection efficiency has been only 80 per cent or those ‘five boxes' of materials that we do not know of.” In other words, the level of collection versus the delivery efficiency determines very quickly what the problem will be or won't be. “We are trying to have some device at the source where the driver or the escort can scan the material that he got or at the first point of intelligence for the OEM or the customers. We are working on it and trying options like barcode. You cannot have a hand-held device and keep scanning the material each time.” Vehicle tracking is there but once it comes in, TVSL will have to take out the black box. Thankfully for the company, hand-held devices are becoming mature. “Our requirement is that the hand-held must contain a good quality camera, a SIM card for voice communication; a QWERTY keyboard for data entry; a single and two-dimensional barcode scanner — some give single or some the picture, you need to scan both.” The issue is not so much getting these scanners — some manufacturers in Taiwan and Korea supply these. The challenge is to skill the users before TVSL can give it to them, he says.

“Some of our suppliers do not give bar-coded materials. Sometimes they give us materials in gunny bags. You begin with 100 parts but magically it became 90 when we delivered it to the customer! That cannot happen.”

TVSL says it needs to educate its partners as a lot of them are external vendors. “That will take some time. We have to give all these expensive devices to them. Once we have them operate these devices, even with minimal English inputs, then the value increases on both the sides of the chain and we plan better.”

Also, when the production mix changes, the choosing the routes themselves would be different. “The material has to be delivered in multiple stores in the area. The way you feed the truck is very critical. It is not like first-in last out.” TVSL has vehicles with side openings with a certain orientation of cages. “The cage itself costs money and we need to track them separately. Once you know the suppliers' requirement you can route the cage accordingly.”

Parameters – cost saving

Scalability is the major issue that IT has helped drive for TVSL. “If you take our hub in Puzhal, near Chennai — pre Ramco days — it was all manual with feeding of information in Excel sheets and papers strewn all around. With Ramco coming in we are able to handle two or three times the same volume.” TVSL now has a single, integrated view of all the data coming in. Transport planners know exactly what to carry. There are no last minute surprises — “for instance, we should have placed a nine-tonne truck instead of a six-tonne was an usual complaint in the pre-automation days.”

Second, once it started to see a bulk view of these materials, TVSL started bulk-buying. It assured the vendors (truck operators) of a certain fixed capacity in specified routes and guaranteed a minimum, then TVSL would get the best rate. “There is a 2-3 per cent saving on cost.”

Another area where IT helped was in increasing efficiency when it came to loading and unloading of materials. “With knowledge of what was to go in and when it had to come out, we now knew exactly how to how to load materials in a vehicle and exactly how to unload it.” Since the business yields low margins, TVSL needs to use every bit of space available — for example, how much more can you dump in the same palette, is a useful question to answer.

“We were able to do a lot of vertical stacking in the warehouses. The vertical stackers can go up to 25 ft, and lot more efficient in terms of picking of materials.”

Interestingly, across all these endeavours, data is entered into the system only once and picked up by all. “There is no duplication in entry of data,” clarifies Chakravarthy.

Manpower

About five years ago, TVSL had about 1,500 people and doing top-line business of Rs 100 crore. “We are now at Rs 1,200 crore with a total employee base of around 5,000, full-time. We have to have this type of non-linear growth. If I make a time and material type of IT contract, this will keep multiplying and I would have a big HR department.”

Integration with vendors

This is trickier for TVSL. With customers, it has an EDI interface with messages going back and forth mostly for confirmation. In terms of what should be picked up from where, information comes on a daily basis, sometimes even twice or thrice a day.

With suppliers, automation hasn't really matured. Chakravarthy feels that the best way, for now, is to communicate through SMS (both ways) through a national gateway. “From the supplier's side it is mostly a confirmation that I can give the vehicle with this space and capacity. Still we re-confirm to ensure that they are absolutely sure that they can give the vehicles.”

TVSL has about 500 suppliers — who supply transport, labour and warehouse services. In terms of collections, there are around a few thousands.

SMS – volume

Incoming, TVSL does about 1,200 messages a day. These are the messages on volumes every day and from which locations as everybody has a good messaging service. It is a good way to capture structured messages.

What next?

TVSL wants to next get its vendors on board. “We have to create a service provider base. It is about vendors exchanging information with each other — it is not social networking — on what is happening in the industry. Their skill levels vary a lot across sections. Providers such as KPN, are quite advanced in terms of what they do while there are single owners who do not have an idea and they are taken for a ride.”

Pricing for customers

Understanding productivity at the parts level helps TVSL offer a constant pricing to clients? But does not the client want variable pricing? After all, if his revenues go down, so should his expense. Chakravarthy clarifies that at a per truck price, for example, it should not matter to the client whether he makes one truck a day or 1,000. “It is my job to manage the backend as I have the critical mass to amortise the cost.” Whether it is a good month or a bad month, the logistics cost does not move at all.

Earlier, if business (that a client gave the logistics provider) went down, the logistics cost (per unit) went up. But now, be it a good month or a bad month, TVSL ensures that the logistics cost remains the same “because of the scale at which we operate and because of the vehicles we operate.”

The idea here is to average the costs out across clients. “That's where our skills come in.”

Freight management

The next big step of progress for TVSL is to use IT to track asset-level profits. Its assets here include forklifts, battery-operated trucks or container stackers. “Even though we make good margins we want to make sure that the assets are in operation. We want to track asset-level profits. Only if the assets work we make money.”

IT should help TVSL determine whether “The machine is consuming too much lube oil; has it had too many spares replacements; does it need an overhaul ten times a month instead of twice?” It has over 700 assets used in various locations.

Chakravarthy feels that to track ten assets, such a system might not be necessary, but to track 700, it's a must! This module will come into play next year.

Ramco Systems and TVSL aim to sell these solutions developed jointly to other logistics players. TVSL is to get royalty out of such sales.

TVSL provided all of the design of the solution, so as to make it saleable in the Indian market. “Our people are hardcore logistics people and not IT savvy. For the launch we had 30 people full-time from our side. They included the core architects and the super users who know this well. Ramco has a similar team size. This was about a year prior to the launch.”

TVSL spent a total of about Rs 5 crore on these solutions.

Discretionary spend

Asked if the Indian CIO is similar to the global CIO in terms of cash he has on hand for ‘discretionary' spends, in addition to budgets that he might be allocated at the beginning of every year, Chakravarthy says, “TVS is slightly conservative in terms of budgeting. Typical IT budget in the industry are about 4-6 per cent of top line. We are around that level too.” TVSL's core IT team is about 25 people.

GPS vendor

Bartronics provides GPS solutions for TVSL. The GPS and RFID solutions company has also provided manpower attendance related applications for TVSL. Says Chakravarthy, “Initially we tried biometrics but it does not work well in our context.” In other words, warehouses are typically full of grime and dust and biometrics that use finger print scans don't typically work the best in such an environment.

Asked if TVSL had used radio frequency tags, Chakravarthy says that that TVSL has used RFID for boxes, but not on materials made of metals and alloys. “There is a lot of interference there.”

Now comes the crux: if Chakravarthy had a chance to do this all over again, with or without an IT vendor, what would he do different?

“I would spend a little more time in the design. I may take in a few more of the stakeholders into our teams. Even earlier, we involved a number of employees. We collected huge amounts of data at the ground level and from our suppliers. While their input may not have helped us at that time, it helped us in the design.” So, more people with knowledge of the processes, involved at the beginning, makes it all the merrier.

The next big thing for Chakravarthy is how to get the mobile platform going. “We are looking at the what and the how.” Though TVSL has cracked the SMS part of it, especially with incoming messages, it is still to make the best of structured messages. “With structured messages, we could make more decision-making possible at the lower levels.” Devices, he says, are not an issue but applications are “tricky and need to be designed for a particular platform.” Currently, Ramco's solution is based on a Microsoft platform and works for handheld devices and that integrates into Windows barcode fonts.

FOUR VERTICALS

TVS-L has four verticals: the first is the after-market spares distribution. “We manage the whole warehouse of a customer; improving efficiency, setting up warehouse layouts and doing materials planning.” This happens often where there is high volume of business. Chakravarthy says, “The Mahindras have outsourced their entire spares warehouse outsourced to TVSL than to its own Mahindra Logistics. Our strength comes in orchestrating the process. We are an asset-light company — i.e, we do not own assets or fleets. Our strength comes in putting things together and making it happen. Spares distribution boomed in India with the overall growth in the auto sector.

Second: transportation and logistics. Earlier a manufacturer had to depend on lorry owners and brokers to transport the goods. Our customers wanted us to do more. They wanted us to schedule trips and ensure that suppliers adhered to pick-ups; to bring palettes to the manufacturing facilities. Basically, we were to extend to the last mile. Since being in auto components, we understand Kanban and just-in-time concepts in materials planning. For large OEMs we offered integrated inbound logistics because they operate a very low volume in supply chain as against the retail sector, which is all about making sure pump the whole inventory in the supply chain and expect that to sell. Here it is all about lean management because the value of parts is much higher. They have a tight control over their process. Here the lorry operator with a phone is the owner himself. So making them to understand the concept of technology and service quality is tough. We have a cell that works with them and educates them. The penalty, for failure, is severe for us. If the Ford production line is stopped, the responsibility falls on us. We need to keep our act together.

Third: line feeding or in-plant warehousing. Any large OEM (such as a big-volume car manufacturer such as Hyundai or Ford) is a typical client. “If you see an i10 or a Ford car rolling out with a employee, the entire supply chain in the backend is with TVSL. We are responsible for certain house-keeping and line-side feeding. We actually have bench strength – the first time I have come across such a thing in a supply-chain company. We have a bench strength, for, the volumes cannot stop. With volumes of 300-400 vehicles coming out in a day, every vehicle not there is a big issue for us. We get in a tight contract with the customer and have to deal with large suppliers. We have warehouse providers, freight vendors and labour providers as we need skilled labour to do the job. That's the in-plant vertical.

Fourth: material handling, aka supply chain. You need to move large amounts of palettised material from a warehouse for dispatch. Companies don't want to do that outsource it to service providers who can bring in the required equipment and staff to do it. We make sure there is enough capacity to manage the assets; make sure it is maintained and equipment runs smoothly.

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