Gammon India becoming a 3PL

untitled3.jpg There is no doubt that the Logistics business in India is rocking! Logistics spending comprises 10% -13% of the GDP and growing in line with GDP @ 8% – 9%. That amounts to Rupees Four Lakh Crores!![ India’s GDP of US$ 1000bn x 10% as Logistics spending = Rs 400000 Cr]. Market Share of LSPs/3PLs is ~9% of the total logistics business in India. This amounts to Rupees Forty Thousand Crores. [ India’s GDP of US$ 1000bn x 10% as Logistics spending x 10% as LSP/3PL market share of Logistics Services = Rs 40000 Cr]. So I am not surprised that Gammon India wants to get into the space.

[1 Crore or Cr as it is abbreviated = 10 million or put in another way 100 Crore = 1 Billion]

A 3PL/ LSP business is different from a Construction business, which is Gammon’s core competency. Gammon getting into the LSP/3PL business is similar to a building contractor who gets into the business of running a hotel assuming he knows how to run a hotel because he knows build one!!!

Now, 3PL/LSP business is not simple business. In most cases, 3PLs/LSPs handle processes for their clients which are business critical or mission critical – shipping products to customers on time, ensuring the right raw material reaches the right plant at the right time. Hence, a Manufacturer, Producer or Modern Retailers will want to be confident of the skills, experience and competence of the 3PL/LSPs before giving him their business.

A 3PL/LSP requires an in-depth supply chain knowledge.The 3PL/LSP should understand the business priorities of the client and how the supply chain enables the client to meet their business goals. What are the supply chain priorities? Is the supply chain’s focus on delivering the lowest cost? Is it focused to deliver innovations at a fast pace? Is it supposed to deliver outstanding service?

A 3PL/LSP should understand the needs of different segments of clients. The Modern Retailer will require cross-docking and will look to the 3PL/LSP to provide the expertise to execute cross-docking. A food producer would require strict FIFO control. The food producer would look to the 3PL/LSP to give a list of expired and about-to-expire products and help reduce obsolescence. A pharma or drug producer would require GMP compliance in their warehousing and transportation processes. FMCG and White-Goods producers would require a fast turn around of orders and a very high customer service levels.

How will Gammon differentiate itself from the other Indian 3PLs/LSP who have wide experience in India? Or differentiate themselves from the international big 3PLs/LSPs like DHL, TNT, Linfox, etc?

The 3PL/LSP will be expected to provide other value added services- WMS, customization, transportation, import-export, sea-freight, air-freight. Gammon will have to get this expertise by buying other players or recruiting top class and experienced professionals.

Gammon India may do well to examine it’s core competency and stick to it’s knitting!


Tata Nano and the supply chain

untitled.jpg As Ratan Tata unveiled the Rs 1 lakh[US$ 2500] car, I thought about the process which enabled the Tata Nano to be designed at this phenomenally low price. It was done by a relentless focus on costs and eliminating waste and redundancy.

The secret of designing the Tata Nano is a concept called Target Pricing or Target Costing.

Target Pricing process attempts to determine what features and functions the customer wants in a car. Do consumer want 2 doors or 4 doors? What should be the engine capacity? Should the windshield wipers have 2 blades or 1? What instruments should be provided?

Once the features and functions are finalized target costs are assigned to each and every component/system – transmission system, instruments, engine, body, interiors, electrical systems. The sub-teams then design the components/systems within the target cost. They look at every bolt and nut and keep driving cost out of the components/ system.

For example the Nano has a variable transmission instead of the standard gears. It has instrument clusters which do not have anti-glare coating and does not use screws for fixing.

This same concept, of relentless focus on costs and ‘scraping the barrel’ mentality can be applied to supply chains!

Cost and waste is driven out of supply chains by reducing inventory, eliminating waiting times and delays, increasing utilization of warehouse and trucks, optimizing location of warehouses and plants, drawing up the optimum transportation network, utilizing backhauls etc.

Reducing inventory reduces the working capital cost , reduces warehousing costs and obsolescence costs . To reduce inventory, demand fluctuation will have to be reduced, reliability of inventory replenishment will have to increased, Inventory Record Accuracy will have to be above ~95% and supply chain length will have to be reduced.

Reducing supply chain times reduces inventory and increases responsiveness. To eliminate waiting times and delays the complete supply chain process will have to be mapped. For this a lead time map is used. Delays like waiting for loading or unloading and waiting for documents can be minimized. Transit times can be reduced [ not by fast and rash driving ] but by using AC cabins and double-drivers. Also, backhauls are a way to reduce costs.

Truck utilization can be improved by using truck optimization softwares . Similarly, warehouse space can be utilized more efficiently by increasing storage height- by increasing the rack heights or having a mezzanine.

On a strategic level, Supply Chain Network Design – locating plants, contract manufacturers, Distribution Centres and warehouses- is important because 70% of the cost of a supply chain is fixed at the design stage.

So while Tata Nano has created a breakthrough in car manufacture by reducing the cost of a car significantly, it has led me to think about doing a Tata Nano with my supply chain.