Transcript Agenda - ERNET

The Logistics Way
Achieving Global Competitiveness
INTEGRATED SUPPLY CHAIN NETWORKS
NV
2005 Summit on
Indian Manufacturing Competitiveness:
Setting the Agenda for Growth
August 18 & 19, 2005
Creating a Globally Competitive
Manufacturing Hub
N. Viswanadham
Executive Director,
Global Logistics & Manufacturing Strategies
August 19 2005
Competitiveness
Lot of debate about competitiveness of Indian
manufacturing
– Services Vs Manufacturing

The Logistics Way
Achieving Global Competitiveness

Competitiveness at various levels – at the individual
corporate firms' level, at the industry level and at the
national level
– The nation’s economic and import and export policies
such as tariffs, customs regulations, free trade agreements
and the logistics infrastructure highly influence the growth
of the firm and the industry vertical.
– Competitiveness of an industry or a nation would be
partly explained by the initiatives and innovations of
individual firms

Competitiveness of industries
– Export competitiveness
– Domestic competitiveness.
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The Logistics Way
Achieving Global Competitiveness
Firm Industry and Environment
Supplier
Supply
Chain
Network
Distributor
OEM
Distributor
Supplier
Retailers
Industry
Industry
Verticals
Environment
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Industry Verticals
The Logistics Way
Achieving Global Competitiveness
Global Value Chains offer new
opportunities ...
Information Flows
Material Flows
R&D (US)
Raw Materials
(Australia)
Manufacturing
(China)
Distribution
(US, EU, Asia)
IT (India)-Finance (US, EU)


Global Telecomm & Logistics networks along with WTO
facilitate “Global Value Chains”
Global Value Chains offer unprecedented economic
opportunities
to developing countries
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
Identify Manufacturing sectors for domestic and export for
Competitiveness and Employment generation
– Agriculture and Food processing
The Logistics Way
Achieving Global Competitiveness
Our Aim here
– Organized Retail
– Manufacturing related services

Suggestions to enhance the logistics infrastructure through
innovative use of IT
– Automating the customs and trade documentation
– Use of Knowledge based service providers

Top it up with smart economic policies
– The number of free trade agreements has grown in recent years and
by 2001 there were 170 regional trade agreements accounting for
40% of global trade (WTO).
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
Benchmarking current state of Indian Manufacturing
– Why is manufacruting competitiveness important ?
– Global logistics
The Logistics Way
Achieving Global Competitiveness
Contents



Where can Indian Manufacturing go from here ?
Defining a strategy for enhancing manufacturing
competitiveness
Conclusions
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The Logistics Way
INTEGRATED SUPPLY CHAIN NETWORKS
Achieving Global Competitiveness
NV
Benchmarking the Current State of Indian
Manufacturing

GDP US $ 692 billion [PPP 3.1 Trillion]
– 10th largest economy and 4th in PPP terms
The Logistics Way
Achieving Global Competitiveness
India - Economic Sectors Snapshot

C o n trib u tio n to
GDP
W o rk F o rce
E m p lo ym e n t
A g ricu ltu re
21%
60%
M a n u fa c tu rin g
28%
17%
S e rvic e
51%
23%
Logistics costs are 10-20% of GDP
– In US it has come down from 15% - 9.8%
– Very high in developing countries (20% in China)
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Vision 2020
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Achieving Global Competitiveness
India’s share of industry is low ...
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Achieving Global Competitiveness
Growth Mandate

It is essential for India to increase its
proportion of Global GDP through growth in all
the three sectors of the economy

Planned or Wild, growth is essential and
important. This could be through
attracting MNCs to India or through
Indian companies becoming MNCs and
raising funds through NASDAQ or large
number of small companies raising
capital from international venture
sources
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75% of India ’s working population (600m)
has education middle school or below
– Only Labor intensive manufacturing and
Organized Retailing can generate
employment in adequate numbers
 Experience of Europe, America, Japan, the
Tiger economies, and now China shows that
Wealth creation is possible only through
International trade oriented manufacturing
 In China manufacturing sector, constitutes
nearly 40% of the GDP and Retailing is
growing at 30% per year.

The Logistics Way
Achieving Global Competitiveness
Why does Indian Mfg
Competitiveness matter ??
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Achieving Global Competitiveness
Indian manufacturing not supporting
economic development ...
Mckinsey Study
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Poor Facilities and Infrastructure
Low IT penetration
Industry partners limited
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Achieving Global Competitiveness
Mfg competitiveness is partly
hampered by inefficient logistics...
Excellent Infrastructure
Sophisticated capabilities and
technology
Easier to attract quality labor
Supply chain partners
Traditional channels
Moderate Infrastructure
Medium IT penetration
With no integration
Processes and infrastructure that
support collaboration
Accenture: Supply Chains in Asia: Challenges and Opportunities
Rated 54th among the 59 countries: Road : 56/59, Rail: 25/59,
Seaport: 51/59, Airport: 40/59
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Country
China, India
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Resulting in increased costs and
reduced competitiveness ...
Logistics Cost/GDP
Logistics activities
performed by 3rd party
/Logistics activities
16-20%
<10%
US
9.9%
57%
Europe
10%
30%-40%
11.37%
80%
Japan
• Potential Savings with Improved Logistics: 10% of GDP
• This requires growth of 3PLs and 4PLs and use of IT
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The Logistics Way
Achieving Global Competitiveness
Where can Indian Manufacturing go
from here ??
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
The Logistics Way
Achieving Global Competitiveness
Manufacturing Strategy
Mass produce locally: Food, Textile, Auto,
Pharma, etc
 Mass customize for export: Pharma, Food,
Textiles
 Unleash the potential in
– Retail
– After sales service: domestic as well as Global
– Contract manufacturing
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Gems
India Sectoral Competitiveness
Invest/Prepare for Global Competition
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Achieving Global Competitiveness
India should concentrate on its inherent
strengths while developing select sectors...
Pharma
Serve Global Markets
IT
Invest in Infrastructure
& Global Brand
Agriculture
Build Scale
Improve Quality
Textile
Retail
Develop Domestic Market
Invest for Domestic Market
Industrial
Mfg
Serve Domestic Market
Inter-national sectoral competition for FDI
Note: Size of bubble denotes employment creation potential
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Achieving Global Competitiveness
INTEGRATED SUPPLY CHAIN NETWORKS
NV
State of Indian Food Sector
Strengths
Weaknesses
1.Vast natural resources
1.Small scale conventional farming
(cultivable land, water, seasons)
2.Primitive post-harvest methods
2.Established farming system
3.Many intermediaries farmers to
3.Growing economy
consumers
4.Supporting government policies 4. Hardly any Food processing industry
(FDI, SEZ, subsidies)
5. Inadequate Cold chain infrastructure
5. Vital outsourcing hub
Consequences
1.Surplus food wasted away
2.Low incomes to farmers
3.Inefficient supply chain
4.No channel master
5.Changing consumer
preferences (processed hygienic
food)
Opportunities for
1.Cold chain infrastructure builders
2.Processed food manufacturers
3.Food logistics providers
4.Food retailers and exporters
5.IT and data analysts
6.Packaging specialists
180 Bn opportunity @ 10% annual
growth rate
 Food processing and retail 50Bn
 Not Considered an Industry

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Retail:
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Retail: The Indian advantage



There is a huge opportunity in this space
5 M retail outlets employing 21 M ( 7% of total work
force) people
100% FDI is not allowed for foreign companies.
Least saturated of global markets with small organized
retail.
The least competitive of all global markets studied
– Lower barriers of entry for global players
– Tremendous market size in both Urban, and Rural
areas,
– Growth potential of 20-40% as in China
When 100% FDI is allowed, retail will go
turbulent with entry of international retailers
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
After sales is a big market much more
profitable and less developed market
– Aircrafts, Server Farms, Medical equipment, .
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Manufacturing Related Services

Service innovations and Service Science
are much needed.
 India has an advantage
– Components hub
– R & D hub

After sales hub is a step away but needs
high speed logistics
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Achieving Global Competitiveness
Special Economic Zones (SEZ s)
SEZ is a geographical region that has
economic laws different from the country’s
typical economic laws.
 The purpose of SEZs in a country is to boost
its foreign investments.
 SEZs have been established in many
countries – China, India, Jordan, Poland,
Kazakhastan, Philippines, Russia, and,
North Korea.
 Indian SEZs are not as effective as those in
China probably because they are not as
focused
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SEZs Need To be Architected Synergistically
Information
Assets
Knowledge
Creators
Supply Chain
Cluster
Physical
Assets
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Vertical
Industry
Cluster
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Achieving Global Competitiveness
NV
Defining a Strategy for Enhancing the
competitiveness of Indian Manufacturing

The Logistics Way
Achieving Global Competitiveness
Efficient Global Logistics is more
than Brick and Mortar Infrastructure


Most developing nations have a single-minded devotion
to expanding their hard infrastructure such as airports,
highways, and shipping ports
They Overlook other network components — such as
efficient customs clearance and quality trucking services
— that can have a strong impact on GDP.
There is a tremendous need to understand the balance
between brick-and-mortar projects and policies,
regulations, and enforcement measures.
– Speeding up customs clearance, automating the trade
documentation process and making processing times more
consistent, would allow companies to reduce inventory levels
– Singapore saves 1 Billion dollars a year by use of Trade net
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
In any economy, the logistics industry bears
substantial direct and indirect costs.
– Direct costs such as transportation, warehousing,
The Logistics Way
Achieving Global Competitiveness
Indirect and Direct Costs
and handling, are more transparent.
– Indirect costs such as stock-outs, unnecessary
high inventories, and obsolescence, are much less
visible

Efficient logistics can increase the cost
competitiveness of nations
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
Overcome Infrastructure Barrier
– In short-term employ smart process & IT
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Some Suggestions on
Manufacturing Strategies ...
solutions

Employ IT prowess in logistics and Trade
– Deploy 4PL model
– Electronic Trade Documentation Processing
Systems
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Domestic
Seller
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Achieving Global Competitiveness
Electronic Trade Documentation
Systems ...
Domestic
Carrier
Buyer
Global
Bank
Domestic
Carrier
Exporter
Domestic
Carrier
Bank
Importer
International
Carrier
Customs
Forwarder
Broker
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Customs
Integrated Trading Blocs
Telecommunication
Gateways
China
The Logistics Way
USA
Logistics Network
Trading Blocs
Achieving Global Competitiveness
Information Network
Malaysia
Multi-modal
Logistics Hubs
Mexico
Europe
India
Financial Network
Banks/Financial
Institutions
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The Logistics Way
Achieving Global Competitiveness
Until Infrastructure catches up smart
solutions will have to substitute ...
Public Infrastructure: Roads, Transport, Sea and Air
Ports, Power, Water, IT connectivity and their reliability
and availability impacts competitive performance.
Outsourcing to China and India tells a different story.
– Businesses are doing well despite poor infrastructure.
– Businesses move out of Singapore which has excellent
infrastructure

Smart firms cope with poor infrastructure
– OEMs force suppliers to locate nearby or they locate the
assembly plant near supplier parks: Maruti, Ford, Hero Honda
 This will enable the assembler to follow lean philosophy
 Two autoclusters: Chennai and Delhi
– Have Captive Power Plants
– Outsource to Third party logistics providers
– Substitute Information for Inventory
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
Indian companies can exploit this strength to develop
specific capabilities in IT-enabled Logistics
–
The Logistics Way
Achieving Global Competitiveness
Leverage IT In Logistics software
Development
–
–
–
development and management of logistics planning
and coordination systems.
develop in to 4PL s for global manufacturing and
service industries with logistics domain knowledge.
develop automated trade systems such as Trade Net
and Digital Trade Transportation Network for trade
documentation and customs permit applications.
Develop Real-time control & Event Management using
Radio Frequency Identification Tags (RFID) and WebServices
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Planning, Coordination and Overall Responsibility
Orders
4PL
The Logistics Way
Achieving Global Competitiveness
Employ 4PL strategies to enhance
service quality and efficiency...
Customer
Payment
Plans
Operational
Status
Supplier
2 & 3 PLs
Contract
Manufacturer
Material Flow
Service
Execution
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
Indian manufacturing is poised for a big take off
– Emphasize local and export markets
– Capitalize on strengths such as food, auto, Pharma and
The Logistics Way
Achieving Global Competitiveness
Conclusions
retail

Opportunity to innovate bricks and IT based
strategies for trade growth
 There is a huge opportunity in health care,
Infrastructure supply chains
 E-commerce is raising from the ashes and there is a
huge opportunity in this area.
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The Logistics Way
Achieving Global Competitiveness
10,000 KM
16,000 KM
NORTH AMERICA
Atlantic Ocean
Thank you
8,000 KM
Panama Canal
Pacific Ocean
21,000
KM
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SOUTH AMERICA
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Achieving Global Competitiveness
INTEGRATED SUPPLY CHAIN NETWORKS
NV
Sectoral Case Studies
Retail
Agri-Supply Chains
Automotive Manufacturing
Pharma & Healthcare
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Achieving Global Competitiveness
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NV
Sectoral Case Studies
–
–
–
–
Retail
Agri-Supply Chains
Automotive Manufacturing
Pharma & Healthcare
The Logistics Way
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Achieving Global Competitiveness
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Retail Supply Chain
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Achieving Global Competitiveness
No Bn$ players as in China
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Achieving Global Competitiveness
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Agricultural Supply Chain
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The Logistics Way
Achieving Global Competitiveness
Agriculture provides 21%
of GDP and 60% of employment
 The chain is long and slow

The Logistics Way
Achieving Global Competitiveness
The Agri Supply
Chain
– A supply chain study for rice would involve
farmers, seed producers, fertilizer factories,
financial institutions, millers, government,
warehouses, fair price shops, retail shops,
railways, truck transport companies, etc.

Orders of magnitude gains are possible if
you apply the Industry supply chain ideas
here
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Customs & Export
Regulations
Logistics &
IT
FOOD
CHAIN
Suppliers
Meat &
Fisheries
Government
policies
R&D
Institutions
Manufacturers
Packaging
Quality Control
The Logistics Way
Achieving Global Competitiveness
Food Supply Chain Cluster
Local Distribution
Finance and
Insurance Companies
Global Retailers
Fruits &
Vegetables
Dairy
Retail Chains
Restaurants
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Kirana Stores

No Supply Chain View
– Fragmented capacities at every level
– Large information gaps: poor farmer processor
The Logistics Way
Achieving Global Competitiveness
Problems with the Agribusiness
linkage
– Limited contract farming

Limited private interest
– Regulatory obstacles: Land holding,
Agrimarketing, Retail sector, Price controls
– Underdeveloped markets: distribution bottlenecks
and limited reach
– Unclear security for traditional banking

Missing infrastructure
– Limited irrigation reach
– Storage and transport underdeveloped
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Food Manufacturing

The Government of India allows 100% FDI in this
sector.
There are incentives for setting up processing plants
either in Agri –Export Zones or outside of them.
– Sourcing of raw materials (fruits or vegetables or flowers or
The Logistics Way
Achieving Global Competitiveness

meat) is easier with an AEZ since the participants have
industry standards knowledge.

The Opportunity to create
–
–
–
–

Halal hub (Export to South-East Asia, Middle East, ..)
Vegetarian hub (20% of Indian population + overseas)
Organic food hub (Europe and USA)
Sea food hub
Negatives on Food manufacturing in India
– Food Packaging is expensive,
– High import duties on Processing and Packaging machinery,
– High sales tax on packaged foods.
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INTEGRATED SUPPLY CHAIN NETWORKS
Achieving Global Competitiveness
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Automotive Supply Chain
Components
 Improve Supply chain efficiency using
IT and AI
 After sales

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Achieving Global Competitiveness
Auto Logistics and Supply Chain
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Indian Automotive Industry
US$ 8 billion (1% of Global Automotive industry)
– Almost 50% (US$ 4 billion) as Aftermarket, one of largest
proportion in the world
Contributes substantial 5% of India’s exports
 Employs nearly 300,000 people (directly & indirectly)
 8 volume passenger car manufacturers - 5 CV
manufacturers, producing 0.3 million passenger cars
and 200,000 CVs per year, on a steadily rising trend
 Component sector has 600 first/second tier and almost
10,000 3rd tier manufacturers, employs 150,000
people and is worth 3.5 billion
 World's top 20 first-tier suppliers present through
collaborations
 Aftermarket Logistics is a big opportunity

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
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Service/Spare Parts/ forecast
Sales forecast
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Achieving Global Competitiveness
Integrated manufacturing service
networks
Inventory
Cost
Logistics
Cost
Design
Cost
Manufacturing
Manufacturing
Cost
Equipment
Cost
C
U
S
T
O
M
E
R
S
Testing
Equipment
Wide Service
network
Service
Trained
Personnel
Obsolete
Spare Parts
Inventory
Information about
servicing the product,
service and spare
parts requirement
forecast
Feedback about product’s
performance, design
improvements from service point,
customer’s needs
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Achieving Global Competitiveness
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Pharm & Healthcare

20,000
Values in Rs Crores
Indian
Pharmaceutical
Industry
18158
15193






19042
15720
15,000
10,000
5,000
0
Size of industry (2002)
US$ 4.5 billion with over
20,000 registered manufacturers
Provides employment to 2.9 million people
Meets almost 95% of the country’s pharma needs
McKinsey projects US$ 25 billion by 2010
Recent advances in biotech and IT not exploited
Efficient distribution systems not in place (Logistics)
Industry Consolidation expected through M & A
2000
2001
2002
Year
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Growth of Indian Pharmaceutical Industry
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2003
Clinical Trial
Logistics
FDA
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Achieving Global Competitiveness
Pharma Supply Chain
Cluster
Quality Control
Track & Trace
Manufacturers
Packaging
PHARMA
HUB
Suppliers
Government
policies
Retail Chains
Medical Stores
Drug Discovery
Distribution
Hospitals
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Finance and
Insurance Companies
Trade
Management
Export
 Healthcare
The Logistics Way
Achieving Global Competitiveness
Health Care Logistics
services involve
coordination between multiple parties
of doctors, hospitals, pharmacists,
medical equipment manufacturers,
etc.
 These interactions and processes are
logistics-based.
 For example, In clinical trials, drugs
and patient samples are exchanged
between multiple patients and
research institutes.
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•Networking and Coordination of
different players
•Multi-lingual Call Centers
Patients
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Achieving Global Competitiveness
Coordinate Disease Management
•Counseling
Voluntary
Organizations
Government
Agencies
•Information
•Diagnosis and Monitoring of
Patients
Hospitals
AIDS Management
Research
Institutes
•RFID tags, Internet
•IT support
•Clinical Trials
World Health
Organization
Philanthropists
like Microsoft
Pharmaceutical
Companies
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
Arise in different contexts
– Health Care
The Logistics Way
Achieving Global Competitiveness
Service Chains Provide
Immense Opportunities
– Construction
Window of Opportunity
– Finance
– Defense
– Manufacturing
 Returns handling
 Spare parts and MRO
 Reverse Logistics
– Transportation
– Containers
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
India is focusing on infrastructure
–
The Logistics Way
Achieving Global Competitiveness
Logistics for Large Infrastructure
and Engineering Projects
–

a wave of projects such as the
construction of airports, seaports,
industrial parks and national highways.
These can be completed in time and
budget through proper logistics
management and coordination of various
activities.
Business strategy to develop
infrastructure and Industry
simultaneously
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In the case studies we observed…
The Logistics Way
Achieving Global Competitiveness
Construction SCM Headlines
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The Three Circles
Asia Pacific
28.9%
(PPP 34.7%)
The Logistics Way
Achieving Global Competitiveness
Shares of World GDP, 2004
North America
31.2%
(PPP 26.5%)
Western Europe
28.7%
(PPP 21.9%)
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Manufacturer
Wholesaler
The Logistics Way
Achieving Global Competitiveness
Reverse Supply
Chain
Local
Distribution
center
Retailer
Customers
Reverse Hub
•Accumulate
•Sort
•Process
Controlled
Destruction
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Refurbished
Recycled/
Headquarter
Recondition/
Reclaim N.Viswanadham
Auctions/
Exchanges
Barter
Agents
We assume a four stage repair process
Diagnostic Equipment &
Mechanics
The Logistics Way
Achieving Global Competitiveness
Repair Center: Resource
management
Repair Equipment &
Mechanics
Spare Parts
Incoming
Jobs
Repair
Diagnosis
Testing
Final touchup
Delivery to
customer
Testers
Final touchup crew
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The Indian Logistics Infrastructure
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The State of Indian International
Logistics
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
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Achieving Global Competitiveness
Standardization, Integration of
Trade Flows
Trade flows are facilitated by harmonization
of information, material & financial flows.
– Need to define standards for each of these flows
to ensure hand-off from one country to another
– Trading Blocs achieve this harmonization
enhancing intra-Bloc trade
– Forrester says that countries e-ready countries
will benefit from enhanced trading activity
between themselves.
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
The Logistics Way
Achieving Global Competitiveness
International Trade
International logistics flows are substantially more
complex, with as many as 25-30 hands-off points
within a complex global move.
 Lead times are substantially longer (measured in
weeks, unless expensive air freight is used) – total
transit times of 21-35 days from Asia are common.
 There is substantially more documentation required
(commercial invoices, customs paperwork, etc.).
 There are as many as 7 times the number of cost
elements to consider, including duties, tariffs, freight
forwarding costs, etc.
 Security issues in the global sourcing process
require a new level of intelligent logistics software
capable or higher levels of tracking and notification,
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The liberalization and globalization of trade in the 21st
Century, has brought about a paradigm shift, where the
conventional and traditional role of customs as a
regulatory and revenue collecting agency, has been
complemented with that of trade facilitation.
 The Every international trade transaction involves at
least two Customs intervention; one at the import level
and the other is at the export level. Customs has
substantial impact on the movement of goods across
international borders
 Trade document automation is common in south east
asean countries and Singapore saves 1bn USD a year
on use of Trade net

The Logistics Way
Achieving Global Competitiveness
Customs plays a key role in
International Trade.
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
Indian component manufacturers will move up the value
chain as contract manufacturers
– Frost & Sullivan has estimated that the revenue of the logistics
The Logistics Way
Achieving Global Competitiveness
Future Trends in Manufacturing Industry
industry from the manufacturing sector alone was $13.46 billion
in 2003, and the market is likely to grow at a rate of 6.2%
during the next five years
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Strategic location of industries and B2B connectivity to
marketplaces
The increasing online sales will force e-companies to
forge strategic alliance with logistics service providers
– India can expect a shift in the retail logistics, B2B procurement
practices and the way the distributions are handled
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Adoption of new technologies such as GPS and RFID
will take place rapidly
19/08/05
N.Viswanadham
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The Logistics Way
Achieving Global Competitiveness
Frequently mentioned advantages:
India
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One quarter of the world’s youth live in India
54% of the Indian population is less than 25 yrs of age
2nd Largest English speaking workforce
Second largest pool of technically qualified knowledge
workers
IPR laws in place
Cheap labor force and a preferred BPO destination
R&D centres: General Electric, Microsoft, IBM, Cisco,
Intel, General Motors, Astra Zeneca, Motorola , Texas
Instruments
Biotechnology is a new hot spot.
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N.Viswanadham
The Real Advantage India
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The Logistics Way
Achieving Global Competitiveness
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52% cultivable land as against 11% in the world.
Existence of 15 major climates : snow bound Himalayas to hot
humid southern peninsula; Thar Desert to heavy rain areas
Nearly 46 out of 60 soil types.
Sunshine hours and day length are ideally suited for round the year
cultivation
Centre for biodiversity in plants, animals, insects, micro-organism
and accounts for 17% animal, 12% plants and 10% fish genetic
resources of the globe.
In the live stock sector, India has 16% of cattle, 57% of buffalo, 17%
of goats and 5 % of sheep population of the world.
Fragmented unorganized retail worth 200 bn
Rising percentage of cash rich young people
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N.Viswanadham
Gems
Infrastructure Barrier
Current Sector Competitiveness in Global
Markets
IT
The Logistics Way
Achieving Global Competitiveness
A majority of the sectors need to
overcome the Infrastructure Barrier...
Agriculture
Industrial
Mfg
Current Infrastructure Competitiveness
Note: Size of bubble denotes employment creation potential
19/08/05
N.Viswanadham