challenges to Logistics to enhance indian manufacturing

With the recent successful launch of Agni-5 missile with its range more than  5000 Km, India has joined the select club of nations like U.S. , China, France and  Russia ,however to be entitled to be called a  super power, India has to catch up with these  developed nations on many fronts . One such desired area is definitely manufacturing because China in order to become a real super power improved itself drastically in area of manufacturing so much so that with its sustained efforts, it became a global manufacturing hub.   

Manufacturing in India is still a mere 15 percent of the country’s GDP while it is 34 per cent for China and 40 per cent for Thailand .  Eleventh five year plan targeted growth in manufacturing at 10 to 11 percent but actual performance remained  only about 7.7 percent. Government of India (GOI) has as such rightly put lot of emphasis on manufacturing in its 12^th five year plan ( year 2012-2017)  by  targeting  a growth of 12 to 14 per cent. As per the 12^th national manufacturing plan, the 2.0 to 4.0 per cent differential over the medium term growth rate of the overall economy will enable manufacturing to contribute at least 25.0 per cent of GDP by  year 2025.

This shall help to provide a large portion of additional employment opportunities to  India’s increasing number of youth. While the services sector has been growing fast, it alone cannot absorb the 250 million additional income-seekers that are expected to join the workforce in the next 15 years. Unless manufacturing becomes an engine of growth, providing at least 100 million additional decent jobs, urban, rural gap will further widen and it will be difficult for India’s growth to be inclusive. Further India’s balance of trade can not be balanced any longer  just by increasing raw material exports and importing finished goods and the export basket must include much larger volume of manufactured goods.

 However to reach this ambitious target, a lot needs to be done in the direction of improving country’s infrastructure to produce quality products and be competitive globally. What is required as such by manufacturing companies is working on optimum cost and improvement in quality, efficiency and speed to response to customer’s needs in the global market place. In all these directions both inbound logistics and outbound logistics as shown in figure 1 below face unprecedented challenges and can make major contributions if tackled in a planned manner.

                                        Figure 1

 National manufacturing plan has identified following sectors as priority sectors for the 12^th five year plan.

1. Sectors that will create large employment

• Textiles and Garments

• Leather and Footwear

• Gems and Jewellery

• Food Processing Industries

• Handlooms and Handicrafts

2. Sectors that will deepen technology capabilities in Manufacturing

• Machine tools

• IT Hardware and Electronics

3. Sectors that will provide Strategic Security

• Telecommunication equipment

• Aerospace

• Shipping

• Defence Equipment

4. Manufacturing-Technology sectors for Energy Security

• Solar Energy

• Clean Coal Technologies

• Nuclear power generation

5. Capital equipment for India’s Infrastructure Growth

• Heavy electrical equipment

• Heavy transport, earth moving and mining equipment

6. Sectors where India has competitive advantage

• Automotive Sector

• Pharmaceuticals and Medical Equipment

7. MSME sector

—the base for the Manufacturing Sector—employment and

enterprise generation

Among the above sectors, Automotive sector, heavy electrical equipment, pharmaceutical and medical equipment, machine tools, telecommunication, Aerospace, shipping and defence equipment etc have quite a complex manufacturing and as such objectives like cost minimization to remain competitive, attainment of speed, efficiency, quality and responsiveness to customers are more challenging and equally is the contribution of inbound and outbound logistics extremely critical. While government of India is taking suitable steps in various directions like creating trained manpower, encouraging Industry Academia interfacing and improving logistics infrastructure in the direction of  Road, , shipping and Aviation with emphasis on public and private partnership, we shall  look more closely  into the challenges which are offered to manufacturing  and Logistics industry and to new and existing Logistics players. I must point out here that the challenges are also new opportunities to the new and existing players and  if they are able to embrace the challenges successfully , they have a big opportunity to reap the benefits as early birds giving them sustenance to become long term players. What one needs to remember is that in such an environment, manufacturing companies, logistics players, suppliers, dealers and Retailers have to strive through teamwork  to a  perfect supply chain order that is getting the right product to the right customer at the right time, in the right condition and at the right cost.

For manufacturing companies to succeed, handling inbound logistics by manufacturing companies is of paramount importance and quite critical. While there are enough outbound logistics players in the country handling transportation and warehousing of finished goods, there are only few inbound logistics players helping manufacturing companies and can be counted on fingers. It is a common knowledge that lack of one critical component during manufacturing can bring entire manufacturing activities to a screeching halt. As such ensuring faster availability of material and components at the right time for manufacturing   companies becomes an essential factor and as such manufacturing companies must choose their Logistics partner very carefully. I would like to call inbound logistics players as better half of manufacturing companies as such marriage must take place between the two for a long term relationship which would be mutually beneficial.

Globally such strong relationships have helped Companies like Toyota, Ford, Chrysler and many more with their 3 PL  partners like DHL, Ryder , Schneider Logistics , GEFCO and VASCOR ltd etc evolve cost optimizations in their inbound and outbound logistics  increasing  their profits and customers/dealers’ delight .  

Further consider the following facts.

·          Logistics in manufacturing  industry is the  most important function after product development   as there is a significant volume of goods movement, both inbound (components and material sourcing) and outbound (product distribution).

·         On the inbound side, 3PL service providers ensure timely delivery of materials in the required quantities to meet daily production schedules and can play a major role  in the order processing of manufacturing companies.

·         On the outbound side, they play a significant role in satisfying  dealers as last mile activity by ensuring timely consignment delivery to dealers increasing responsiveness to Dealers providing them a safe  and reliable service. They also play value added logistics functions such as packing, labelling , quality checking and pre-inspection activities.

Now that the Manufacturing in  India has to grow rapidly , the time is just ripe for third party logistics providers to integrate their logistics operations both inbound and outbound into the supply chain of the  manufacturing companies to create a win-win situation for both the parties to maximise their ROI  through cost optimizations and improvement in service levels to their customers and dealers.

 Here one should keep in mind that technology can play a very crucial role in ensuring success and as such inbound and Outbound Logistics players who understand the importance of technology such as implementation of ERP, Information technology, RFID , automation etc and are ready to make investments in these areas stand a greater chance of success.

CHALLENGES TO LOGISTICS COMPANIES ( 3PL SERVICE PROVIDERS)

We shall now discuss more closely to see what are the challenges for the logistics companies ( 3PL service providers) to provide impetus to manufacturing.

1.       Technology resources

In the new environment, there is a challenge to 3PL service providers to sharpen their information system capability, Automation and ICT capabilities and their accessibility to technical knowhow through Tie-ups, foreign collaborations. They must widely embrace technology covering mobile solutions that enable surface and airfreight operators to communicate while shipments are in transit; route optimization and navigation software; and customer-facing solutions offering tracking and tracing capabilities. Technology should not be used by them merely for technology sake. They must create enterprise-wide visibility, control conformance to shipping instructions, and monitor carriers' performances in pickups and deliveries.

2. Customization and Flexibility

3PL providers should rise to the occasion to be flexible in accommodating emergency and contingency requirements of manufacturing companies. They should have their back-up plans in active mode including manpower, routes and network resources. They must continuously get involved in for continued process improvements that control costs and ensure ongoing efficiency.

The Mantra for manufacturing companies while outsourcing their inbound and outbound logistics to 3PL service provider should be:  focus on your core competence and reap the benefits of third party infrastructure by outsourcing to parties who have specialized expertise and experience in these areas. 

3. Challenge of increasing Resource strength in terms of  manpower and network resources.

3PL companies shall have to hone up their manpower resources in terms of their motivation level, skill set with professional development program. Remember that in a service segment in which Logistics providers operate, 4 Ps unlike in marketing mean people, people, people and people.

4. Industry knowledge and expertise

3PL service providers shall have to accept challenge of providing relevant experience with different type of products, technology integration, geographic area and their routes, and other specific needs. If the need be, they have to be receptive to enter into foreign collaborations.

5. Challenge of enhancing operational strengths

3PL service providers must serve multiple product markets where compliance, safety, and cargo security are required. If one logistics provider can meet the needs of a diverse base of customers, each with its own challenges and industry requirements, then the chances of a successful partnership with manufacturing companies greatly increases.  In a present globalized scenario he has to have capability to handle inbound and outbound multi-modal logistics involving domestic and foreign vendors. His access and proximity to sea port and airports and material handling capabilities, his fleet strength are important considerations.  He must be able to tackle expedited deliveries. Whether he can run Milk runs to help optimize transportation and production? Manufacturers and Logistics provider both can operate efficiently by increasing the frequency of runs to multiple suppliers, which reduces the lot size of each move, allowing the transporter to fill trucks.

6. Commitment to tight delivery schedules and safety of  products

Stock-out is a dreaded word for manufacturers and dealers and it can only be avoided by commitment of 3PL partner to time schedules for end to end delivery, safety and reliability. "To be more efficient 3PL providers must enhance the velocity to inbound parts and smaller shipments picked up and delivered more frequently to keep inventory low. Logistics is a key foundation of the complex manufacturing systems as such if 3PL Partner does not move material efficiently and in small lots then manufacturers might lose many of the benefits in their lean production systems requirement.

CHALLENGES FOR MANUFACTURING COMPANIES

There are challenges equally for manufacturing companies in terms of coordination with their third party logistics providers both for inbound and outbound logistics, material management, purchase and dispatch departments. Manufacturing companies shall have to create a dedicated SCM (Supply Chain Management). Many manufacturing companies still handle different parts of supply chain in silos through different departments like outbound logistics being handled by marketing, production planning under manufacturing and material and inbound logistics by sourcing department losing the larger picture of being customer centric and ultimately customer requirements are not met. And when the customer suffers causing loss of business, blame game starts where marketing department would blame production and production blaming in turn sourcing department. This must end and manufacturing companies should start a fresh by bringing all departments like planning, logistics, material under single department of SCM which shall be fully accountable for meeting the customer’s requirements.

Further I am enumerating some more challenges for the manufacturing companies which are as under

·         Change the culture of ‘push sales’ to ‘pull based production and supply system’ where suppliers would have to supply only what is required, whenever required , based on actual consumption meaning thereby frequent supplies of small quantities each time

·         Change the culture in different departments in manufacturing from ‘my department’ to ‘our customer’ approach

·         Change management involving changes in MOPs (measures of performance), Performance management system, Planning process, Execution process, ERP,MIS and communication system, etc.

·         Focus on supply chain management system and integration of all relevant departments under one banner as explained above and IT enabled end to end supply chain planning

·         On line visibility of the stocks through IT connectivity to reduce inventory costs

·         Implementation of KANBAN for pull based procurement

·         E-Tracking of transportation vehicles

·         Introduction of lean manufacturing environment with a total quality management approach throughout the Production

• With increased globalization and increased competition and demand uncertainty , challenge of making their supply chains more nimble, responsive,

            reliable and cost-efficient for taking advantage of windows of opportunities.

• SCM department to ensure that there were no stock outs irrespective of the changes in demand Vs forecast.
• Introduce supply chain visibility with permissible access to your suppliers and customers building a long term relationship of trusts and partnership. Complex manufacturers face a variety of challenges made difficult by the complexity of their products and manufacturing processes. Best in class complex manufacturers have to create a collaborative environment to integrate functionality to produce quality, speed and agility. The end result provides visibility from initial engineering design through manufacturing , to quality control and customer service leading to more profitable business and grater customer satisfaction.

Last but not the least, it is the Innovation by manufacturing companies through their research and development teams which shall matter most creating new cost effective and quality products. A major difference between manufacturing in India and China is the Chinese love for continuous Innovation in almost every low and high end product which has made them manufacturing darling of developed countries. Indians too have to create an environment where innovations are suitably rewarded by Government and private companies and research in universities should  not limited merely to awarding PHDs and writing research papers in journals. Any research which has no monetary value for benefit of the society and which industry can not make use of it or purchase is basically garbage for all practical purposes.  In this direction, Industry-Academia interfacing must be encouraged with flow of knowledge both ways to be really effective and fruitful to bring out new and innovative products to give much sought after impetus to manufacturing in India.

Written By

Prof. Akhil Chandra

Consultant, Logistics and Supply Chain Management

09810223277

Akhilchandra06@gmail.com