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GREEN Supply Chain in India March 23, 2008

Posted by Ramnath Rangaswamy in Blogroll, Business, Emerging Markets, India, Indian Economy, Logistics, Railways, Supply Chain.
7 comments

untitled2.jpgGREEN is fashionable! More so after Dr Pachauri ( my claim to fame now being that Dr Pachauri and I are alumnus of the same alma mater !!!) won the Noble Prize.

There has been a lot of talk and discussions on GREEN supply chains, in the US and Europe. What does GREEN Supply chain mean in the Indian context? What can we in India do, to start the journey towards a GREEN supply chain?

GREEN supply chains are LEAN supply chains with minimal or ZERO waste. Minimizing waste within the supply chain will make the supply chain GREEN.

How can we reduce waste in the supply chain?

Supply Chain Network:
Getting the supply chain network right would reduce transportation. The supply chain network implies, location of plants, distribution centers, warehouses and customization centers. As a thumb rule about 70% of the cost of a supply chain is fixed at the network design stage itself.

Network design and optimization should be done whenever there is a change in the supply chain – acquisition of a company, setting up a new plant, changes in distribution structure.

For example, a lot of companies have recently moved to Baddi and Uttarnchal to take advantage of the tax holidays that companies got by setting up factories there. This change in the location of factories should have prompted companies to relook the complete supply chain- relocating Distribution Centers, direct dispatch to some depots and eliminating depots.
Similarly when the company I worked for took over another company. So, we had to setup new distribution centers and truck lanes because most of the production of the company we took over was in North India, while our company’s manufacturing location was Central, West and South.
With VAT coming in and CST being reduced/ eliminated companies will have to redesign their supply chains. Companies may decide not to have depots in every state and consolidate depots into big mega Distribution Centres.

Transportation:
Companies should improve truck utilization. What this means is that the complete weight and volume of the truck should be utilized.

I am absolutely against overloading. It wrecks the roads and the underpowered Ashok Leylands and Tata trucks have a tough time negotiating even minor slopes and uphill gradients. NO OVERLOADING!
i.e.the container is filled completely, yet the maximum permissible weight is not reached. To maximize the utilization of the truck, products that cube-out and weigh-out should be loaded together in a truck. Some products weigh-out, i.e. the truck reaches it’s maximum permissible weight while the maximum volume is not filled. Some components cube-out softwares available that help to maximize the capacity of the truck. One of the cost saving ideas I implemented involved loading shampoos and diapers together in a truck rather than loading only diapers or only shampoos. We also designed our truck’s bodies to maximize the volume and weight.

Multi-modal transportation. Use railways instead of road. Rail is the most efficient means of transportation. The coefficient of friction between metal and metal is lower than rubber and road. The Railways has started becoming more customer friendly. Customers can own their wagons. Wagons can be designed to meet the specific and special requirements of customers. Goods can be loaded on parcel vans which travel at the same speed as mail and express trains. In my old company, we used to send a parcel van attached to the nightly express from Bhopal to New Delhi, which reached Delhi overnight.This was faster than a truck and at the same (if not lower cost). We sent stocks to Assam by rail because road transport was long and unreliable.

Coastal shipping should be encouraged. Unfortunately for India, coastal shipping has not caught on. This is because coastal shipping is discriminated against as compared to foreign shipping.

Inventory:

Eliminate damage and wastage. This means have good warehousing practices so that damages are minimized. Follow FIFO (First In First Out) or FEFO (First Expiry First Out) so that obsolescence is reduced. Have good pest control, fire prevention and fire control systems.

Keep inventory low. This reduces warehouse space required and consequently the electricity bill and other expenditure related to maintaining a warehouse.

Net net, an efficient supply chain is a GREEN supply chain.

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Insurance for goods-in-transit March 5, 2008

Posted by Ramnath Rangaswamy in Blogroll, Business, Emerging Markets, India, Indian Economy, Logistics, Supply Chain.
2 comments

untitled1.jpg I read an article that said that the government was working with transporters, consignors and insurance companies to fix the maximum value of insurance claim per kg of goods transported. This does not make sense.
The value of goods carried by a truck can vary from a lakh of rupees for food grains, raw materials to tens of lakhs for cell phones, computer parts etc.

A company, manufacturer, producer or distributor enters into a transport contract with a transport company,( or a logistics company as most transport companies now fashionably call them selves). The contract between the manufacturer, producer or distributor and the transport company specifies the terms of carriage. Specifically, it mentions who is responsible for damage and loss of goods in transit. Usually, the transport company who has signed the contract is responsible for the goods once it is loaded on his truck.

The transport company usually takes out an insurance policy to safeguard itself against loss of the goods due to an accident, loss, pilferage etc. The premium is fixed depending on the average value of a truckload of goods, accident record of the company, it’s reputation and area of operation ( Bihar, UP would be more dangerous than West or South India).

Or the manufacturer, producer or distributor can insure their goods-in-transit against and accident or hijack. However, in the FMCG company I worked for, we found the annual premium on an insurance policy for goods-in-transit, much higher than the value of the goods lost in an accident or hijack [ mathematically, probability of an accident/hijack x value of goods in a truck < insurance premium] . So we stopped insuring our goods-in-transit.

The truck industry in India is fragmented. Most lorries are owned by single truck owners. Trucks owned by fleet owners are minuscule. The insurance industry should allow the truck owner to take out an insurance for a single trip and insure the value of the goods depending on the LR value [ LR is a lorry receipt, like a bill of lading]. This is similar to insuring household goods during a shifting of residence. The insurance value depends on the value of household goods declared by the house-owner.

The lorry industry is fragmented. Hence, it is very difficult to get any data like accident record of the truck owner, safety record of the driver etc. The industry is notorious for pilferage and loss, especially in open trucks and less than truck load consignments. Also, the insurance industry is not very ‘clean’. Policies could be backdated so that it seems the insurance policy is taken before the accident or mishap. Because of these inefficiencies, insurance companies would be vary of entering this business.

Fixing a maximum rate per kg for insurance compensation is hardly a solution. Let the market forces act and fix the price, or in this case, fix the insurance premiums. Fixing maximum value of insurance is going back to the license raj. There are smarter ways to solve the issue that the government is trying to solve.