Logging into improved logistics

Among the predictions that V. Sanjeevi, Managing Director of Chennai-based eLogistics P Ltd (http://bit.ly/F4TVSanjeevi), makes is that almost all sales will be captured through PDA (personal digital assistant) or computers at the retail outlet and transmitted to the suppliers as being done by leading companies such as Dell and Walmart. This will definitely bring down the wastages in supply chain, he feels. “And I am sure the logistics cost which is currently at 12 per cent of GDP could go down by about 1 per cent as a result of this method alone.”

With the introduction of GST, more and more companies will switch over to consolidated distribution centres (mother depots), Sanjeevi foresees, during a recent interaction with Business Line . This, he says, brings in an opportunity for further computerisation and automation with large warehousing capacities, moving from lakh to million square feet. “This should also bring down the logistics cost and improve the customer servicing standards. There will be a demand for higher capacity trucks, with inbuilt technologies such as GPRS/GPS systems. This is being implemented by Mahindra Navistar already.” Our conversation continues over the email.

Excerpts from the interview.

Were you to look back, what have been the most significant milestones of IT (information technology) in the areas of logistics and supply chain management?

Looking back into the history of computerisation of manufacturing and marketing companies, one could see the first milestone was the computerisation of distribution centres/ carrying and forwarding agents work. This happened in the late 1980s when the price of desktop computers was at Rs 2 lakh each. The purpose of computerisation was to basically capture the data at least at depot level through computerised invoicing and consolidation of sales/ dispatch information with a lead time of one or two days.

The second milestone, one could say, was the introduction of IT in production planning systems which accepted data from various distribution centres, and the planned production levels at various manufacturing centres to derive the production outputs and allocation of products from multiple manufacturing centres to distribution centres. This computerisation helped in reducing the planning cycle frequency from a monthly to weekly cycle. (Now, production planning is being done on a daily basis in select companies.) In parallel, many companies carried out optimisation studies for creating new distribution centres and manufacturing centres as a standalone exercise; this used to be done mostly once in two or three years.

The third big jump came in the early 1990s when leading players carried out simulation studies to restructure distribution network systems and production planning systems. This brought in an integrated optimised approach for reducing the supply chain cycle time. These studies have also kept in mind, for the first time in India, the servicing standard required by various customers across the country. Through these studies, one could draw the cost service matrix enabling the senior management to decide what should be the ideal service level for the budgeted total supply chain cost.

In the late 1990s, with the introduction of ERP packages such as SAP, people could go for end-to-end supply chain solutions using optimisation at sourcing, raw material stocking, manufacturing, distribution and other activities. The automation process was extended up to the redistribution stockists in the early 2000s, which provided the secondary sales data as an input to distribution centres for allocation purposes.

Over the last few years, companies are providing the salesman with PDAs to enable them to capture the sales data at retailing outlets level to ensure that the supply time to retailers gets reduced to one day. With this integration, the extended supply chain up to the retail point is getting implemented.

However, different industrial sectors have adopted the above developments at different points in time. For instance, the supply chain impact was first realised by the FMCG sector; then by the pharmaceuticals, dairy, automobiles, chemicals, and now by the organised retail sectors.

Importantly, the lack of modern technology in transport management, warehousing systems and order processing can reflect badly on the bottom lines of enterprises.

In which sectors do you find IT delivering the maximum returns, as regards the logistics and supply chain functions?

With the liberalisation of the Indian economy, the supply of goods exceeded the demand levels, thereby putting pressure on manufacturing and marketing companies to improve the servicing standards in addition to many things such as quality, focus on pricing, etc.

If one looks at it from the customer servicing (that is, the availability of goods at retail outlets) point of view, the FMCG business segments such as soaps, detergents, paints, personal products etc. have got the maximum returns. This is also true for the pharmaceutical industry.

In terms of optimising the total supply chain cost, there have been benefits across industries such as automobiles, and fertilisers. The next sector that got the maximum benefit could be the white goods industry in terms of reduced supply chain cost for providing improved availability at outlets.

Would you like to discuss some of the interesting supply chain innovations enabled by IT?

The cycle time of supply chain operations from manufacturing to retailers in terms of information flow which used to be about 30 to 35 days in the early 1990s has been brought down to almost one or two days in the 2010s. This was made possible by using various hardware and software technologies and communication links at various levels, such as the mobile network, satellite communications, personal digital assistants, automated tracking devices, vehicle tracking systems and so on.

Creation of mother depots : These depots are created by a few companies such as the Levers, as the main distribution centres which receive goods from various manufacturing points and redistribute the same to distant depots and stockists. This innovation was made possible in the early 1990s through the usage of simulation and systems dynamic studies which in turn were possible only with the usage of IT. These centres enabled service level improvement (i.e., availability of SKUs at stockist locations) from 55 to 90 per cent.

Reduction of planning cycle times : The planning frequency was reduced from, say, monthly or weekly, to daily basis only with the usage of computerisation and real time communication networks. If a company follows a monthly planning cycle, then, it has an opportunity to review the supply 12 times. If the same company does a weekly planning cycle, it has an opportunity to review its policy 52 times to modify, correct, understand the flow of materials. Over the years, many companies have moved to daily planning cycles.

Material handling systems : These have seen tremendous improvements over the last few years, shifting from simple forklift trucks to automated pick up handling systems in electronic distribution companies such as Redington. In many FMCG and pharmaceutical companies, the stack and aisle numbers are being automated which ensures FIFO systems and reduces wastage of materials.

The automobile transport system has made tremendous strides, thanks to Maruti Suzuki, with the introduction of vehicle/car carriers. It has minimised the transportation cost of cars which were once driven across by the drivers from the manufacturer's point to dealer's point.

How do you foresee logistics and supply chain to be, from an IT perspective, five to ten years from now?

Tracing and tracking technology outputs will be linked with ERP systems using XML interface. A few companies have already making use of online transport exchanges in India which encompass more and more users to bring in improved utilisation of trucks during return trips.

I definitely see an increased shift towards collaborative logistics which I understand is being done selectively in the car carriers and in selected areas of secondary transport system like the milk delivery van being used for distributing bread on a daily basis.

In fact, people will go for collaborative logistics and move closer to customers. Then the logistics visibility improves manifold and a customer who ordered for goods will be in a position to track his consignment as is being done by a few international courier companies today.

The Indian logistics industry players will dovetail their operations to derive cost and service benefits by going in for consolidation. All low volume businesses can derive the benefit of high volume business through this consolidation which many companies are making use of in the developed countries. The basic tool that will enable this transformation in transportation will be IT and communication systems.

I see tremendous improvement in the storage handling and packaging systems which should enable a turnaround within the warehouse much faster.

All the packaged products will have a bar-coded system, and even RFID. This should enable consumers to get all details in the electronic form. In such a scenario, when you go to a shop to buy a product, you may use the mobile phone to study the bar code or RFID to understand the basics about the product before buying the same.

Multimodal operations, 3PL and 4PL services will be used both in the case of imports and exports as 60 per cent of the country's GDP is derived from inbound and outbound trade; and this could be done only through a higher use of IT with electronic facsimile systems.

COMMENT NOW