Logistics sector to re-invent growth

The CII Institute of Logistics hosted Auto SCM India 2008 on November 6-7 in Chennai. The two-day event saw participation from leading domestic and international automakers and logistics and supply chain management (SCM) experts. The event saw them debate and discuss the industry’s challenges and opportunities.

Making the opening observation, ‘Outbound Supply Chain Management for OEM Exports’, R Dinesh, event chairman, Auto SCM and joint managing director, TVS and Sons said, “Logistics has become a differentiating factor and it is time that the supply chain sector is regarded as an industry.” According to Dinesh, the global economic scenario compels all manufacturers to be cost-competitive and the complex supply chain of fully finished units and spares for aftermarket, when managed well, will provide the competitive edge. He added that for every manufacturing job created, there are three to four jobs created in the supply chain sector. However, he pointed out that there is a dire need for simplified processes and documentation similar to that in European countries.

Meanwhile, R Seshasayee, past president, CII and MD, Ashok Leyland urged the players to speed up supply and eliminate inventory. Citing infrastructure as the biggest disadvantage in India, Seshasayee said it is time to refocus on building better and innovative infrastructure like smart highways using the latest technology to enable smooth and speedy transportation.

Inter-modal logistics

“The inter-modal logistic solution is going to be extremely important for Indian automotive industry, which aims at penetrating suburban and rural markets to tap the aftermarket potential and augment the dealership network,” said K Venkatraman, Partner, AT Kearney. He said three key factors impacting the supply chain players catering to the Indian auto industry include the sharp fall of production from traditional OEMs in the US and Europe from 91 percent to 60 percent over the next eight years, growth projections of the ultra low-cost cars segment (expected to record 24 percent growth in the immediate future) and the emergence of China, the Middle East and India as a major economic hub by 2020.

Srivats Ram, managing director, Wheels India, said that since the auto industry is highly fragmented, the information moves through a number of points and layers often resulting in inaccuracy. OEMs order components based on the information they receive from the market but it is often the information is exaggerated and component makers end up having over stock or zero inventory. According to Ram, the turnaround time at ports remains a major handicap. “It is very embarrassing to explain to our American customers that due to union negotiations at ports, the goods are lying at terminals for two days." He rued the fact that the infrastructure is below international norms.

This was in sharp contrast to what Spain has achieved. Juan Madrid, commercial director, Port of Barcelona, the local logistics industry is growing rapidly and Spain handled over four million cars including three million cars that were produced in the country and one million cars that were imported. The Port is doubling its capacity to handle about 900,000 cars a year and it is focused on creating inter-modal connectivity for roads and rails, establishing new rail connections from factory to port and vice-versa.

Vincent DeSaedeleer, vice-president, Port Authority of Zeebrugge, which is one of the largest automotive ports in the world, said that a long-term strategy is vital for ports to emerge competitive. There were 23 major ports in Europe, and “unless we reinvent and reconsider our strategies it would be impossible to remain competitive” he said. DeSaedeleer said that the country is willing to look at creating ‘green lanes’ with India to minimise the documentation process related to imports and exports.

Total supply chain

S Ravichandran, president, TVS Logistics Services, called for joint ownership of inventory and replenishment and a shared process of creation between two or more parties with diverse skills and knowledge.

“The key supply chain delivery challenges include ensuring reliability, least cost/continuous improvements, inventory reductions, flexibility and problem solving ability, transparency, value-added knowledge, and ‘any-location-coverage’. As an integrator, the logistics solution provider has to provide single-window solutions and continuously add value to the customer through knowledge management and optimisation of assets,” he said.

Sudhir S Rangnekar, managing director and group CEO, Sical Logistics, stressed the need for greater cost control. Shipment approval time at Indian ports, which at present takes three to five days, should be reduced. Similarly, cut down the number of documents pertaining to imports and exports. He pointed out that on average the cost of shipment processes in India is around $1,200 as compared to $300-350 in China and Singapore. “The logistics service providers should try to increase their usage of railways and port infrastructure. In India, the domestic logistics via sea, which is called as ‘short sea shipment’ in European countries, is just eight to nine percent and the domestic cargo movement through railways is just 22 percent. However, about 80 percent of the domestic logistics use only roadways, said Rangnekar.

BG Menon of the Marg Karaikal Port said, “South India is emerging as a global connecting point for the automotive sector. In the past three years, there have been significant developments in the port infrastructure of Tamil Nadu. However to attract automotive players, ports should facilitate ‘Roll-On Roll-Off’.”

Jasjit Sethi, CEO, TCI Supply Chain Solutions said that the major bottleneck was lack of industry status. “We do not have a separate ministry for logistics to look into the specific requirements of the ports and to help SCM companies administer processes related to logistics movements across state borders effectively. We also need to create enough road networks.” Sethi emphasised the need for companies to customise their vehicles and equip them specially taking into the specific needs of products they handled. “Without a customised vehicle, it is not possible to meet Just-in-Time supply chain management,” he said and added that route mapping was essential to meet correct time lines. Apart from that companies should have good internet backbone across various points of access, ERP software and digital back-up facilities with right storage medium as the flow of information is more critical than the flow of materials.

Sumeet Nadkar, head – logistics SBU, Kale Consultants said, “The logistics industry is about to take off and the time is right for us to realise the importance of IT that can remove internal process inefficiencies and help collaboration in the supply chain.” He said that though India was is the world’s IT shop, IT adoption by the SCM industry is less than one percent, while it ought to be three to five percent. “The external factors that contribute to the inefficiencies in the industry include: industry fragmentation, constrained transport infrastructure, regulatory issues and lack of trained resources. Internal factors that pose challenge for the industry are customer expectations, lack of scalability and accessibility, reduced profit margins and market slow down”, Nadkar added.