Bench Marking In Logistics Sector

REPORT ON BENCHMARKING OF LOGISTICS INDUSTRIES IN INDIA

BY: SHASHANK CHAUHAN

TABLE OF CONTENTS CONTENT

PAGE NUMBER

1. Acknowledgements ………………………………………………02 2. Declaration……………………………………………………......03 3. Industry analysis………………………………………………….05 4. Company Profile…………………………………………………08 5. Data Analysis…………………………………………………….15 6. Conclusion………………………………………………………..21

2

INDUSTRY ANALYSIS

3

The Logistics Industry Globally, the logistics industry is valued at US$ 3.5 trillion. The U.S., which contributes to over 25% of the global industry value, spends close to 9% of its GDP on logistic services. The Indian Logistics Industry is presently estimated at US$ 90 billion. (CII) The industry has generated employment for 45 million people in the country in comparison with the IT and ITeS sector which employs approximately 4.3 million people. It is forecast to grow at a Compound Annual Growth Rate (CAGR) of approximately 8% over the next three to five years. (CII) Third Party Logistics (3PL) Solutions, is slated to grow at a compound annual growth rate (CAGR) of over 16% from 2007-10. Consequently, 3PL service providers are expected to corner an increased share of the Indian Logistics pie, from 6% in FY06 to 13% in FY11, at a CAGR of 25% (CII). The primary growth drivers of this industry are as under: Investments in the infrastructure sector amounting to US$ 350 billion: Increased efficiency and productivity of the transport system would result in lower transit times. Streamlining of the indirect tax structure: The introduction of Value Added Tax (VAT) and the proposed introduction of a singular Goods and Services Tax (GST) are expected to significantly reduce the number of warehouses manufacturers are required to maintain in different states, thereby resulting in a substantial increase in demand for integrated logistics solutions. Robust trade growth Strong economic growth and liberalization have led to considerable increase in domestic and international trade volumes over the past five years. Consequently, the requirement for transportation, handling and warehousing is growing at a robust pace and is driving the demand for integrated logistics solutions. 4

Globalization of manufacturing systems Globalization of manufacturing systems coupled with advancements in technology are increasingly compelling companies across verticals to concentrate on their core competencies and avail the cost saving potential of outsourcing. This is expected to contribute to an increase in the need for integrated logistics solutions, which is the niche of every Third Party Logistics Service (“3PL Services”) provider. The industry has been valued at US$ 125 billion in 2010. (CII) A snapshot of the FDI regulations governing the industry is as under: i. 100% FDI under the automatic route is permitted for all logistic services except services mentioned in points ii and iii below. ii. FDI up to 100% subject to FIPB approval is permitted for courier services. iii. FDI up to 49% under the automatic route is permitted for air transport services, including air cargo services. It is pertinent to mention in this context, that Press Note 1 (2007) that is expected to be imminently notified by the DIPP proposes to increase the limit of FDI on air cargo services in 74%. � The industry has been at the receiving end of increasing interest from the private equity sector. The year 2007 witnessed just under US$ 1 billion in private equity investments in this industry, representing approximately 7% of total private equity investments during the year, against 3% in the previous year.

5

COMPANY PROFILE

6

SICAL:

7

Brief profile Sical Logistics Ltd.

Industry

Website: Cargo handling 2431

ROC Reg. No. Ownership Chidambaram M.A. Group Registered office address South India House, 73, Armenian Street, Chennai - Tamil Nadu Tel no. Fax no. ISIN Code BSE Demat Code BSE Listing group NSE Scrip Code Face value (Rs) Beta

INE075B01012

Listed On

Bombay , Calcutta , Madras , National

Industry P/E Incorporation Year

www.sical.com 15.97 1955

66157071 25224202

520086 T SICAL 10 1.336

Company Background South India Corpn. (Agencies) Limited, was incorporated as a Private Limited Company in the year 1955 and became a public limited company in 1981. The Company was founded by Mr. M.A. Chidambaram and his son Mr. A.C. Muthiah. The Company is engaged in shipping, stevedoring, ship chartering, ship repairing, marine engineering, marketing and clearing & forwarding business. South India Corpn. (Agencies) Ltd. has five distinct divisions like the Logistics division, Marketing division, Manufacturing division, Agro division and Engineering division. The Logistics division provides services in chartering, ship agency services, clearing and forwarding, stevedoring, transportation and warehousing. The Marketing division consists of the sales division for building materials, cars and heavy vehicles, while the manufacturing division is engaged in manufacturing and marketing auto components, flexible shafts, drums, refractories, etc. The agro division produces coffee, palmoil, special chemicals, enzymes and plant growth regulators and the engineering division focuses on construction, property development and boat building. The company has its head office in Chennai and has branches in all the ports of the country both in the east and west coasts. It also has agencies in countries like Greece, U.K., Scandinavia, Japan, Italy, etc. It is entering into strategic alliance with international companies to provide superior value added services. 8

The promoters hold about 64 percent of the company's equity while the institutional investors and the Indian Public hold about 13 percent and 16 percent respectively.

RELIANCE LOGISTICS: Brief profile Reliance Logistics Pvt. Ltd.

Website:

Cargo handling, incidental to land transport

Industry ROC Reg. 31593 No. Ownership Reliance Group [Mukesh Ambani] Registered office address

www.reliancelogistics.com

Industry P/E Incorporation Year

Plot No.17, State Transport Road, Next To Khira Indl. Est., Santacruz( Mumbai - Maharashtra Tel no. 26466700 Fax no. 26466862 9

15.97 1985

ISIN Code BSE Demat Code BSE Listing group NSE Scrip Code Face value (Rs) Beta

10

Company Background Reliance Logistics Ltd., owned by the Reliance group was incorporated in the year 1985. It is mainly engaged in transportation, distribution and integrated logistics services. With its registered office situated in Mumbai, it is operating with 5 regional offices across the country. It has a wide network of more than 100 branches and 46 warehouses throughout India. It has around 47 distribution centres in 27 locations across India. The company is in the business of road transportation, distribution, integrated logistics services including roll on-roll off(RORO) and rail movements, container placements for export-import cargo and vehicle tracking systems. Its multi user distribution centers provide benefits of shared infrastructure to its customers to increase efficiencies in their supply chain. It provides third and fourth party logistics services to its customers by providing logistics functions across multiple links in logistics value chain and also play the role of an integrator that assembles the resources and technology of its own and other organisations to provide comprehensive supply chain solutions. It controls the movement of liquid chemical, solid products and gases like carbon black feed stock, polymer, polyester, liquefied petroleum gas, butene etc for the Reliance group. It also provides value added services like vehicle tracking solutions, where it provides services regarding fleet and consignment tracking and monitoring and also transportation system and technology services through its information technology support systems. It is also developing its own fleet of trucks through its relogistics network companies.

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ESSAR LOGISTICS: The Company Essar Shipping Ports & Logistics Limited (ESPLL), is an end-to-end logistics services provider with investments in ports and terminals, logistics services, sea transportation and oilfield drilling services. The integrated business model provides opportunites to cater to the complete supply chain management services to clients in oil & gas, steel and power generation industries. ESPLL operates in the following businesses • The Ports & Terminals business operates a crude oil and petroleum products terminal at Vadinar and includes the construction of a dry bulk port at Hazira and a Coal jetty at Salaya, all in the state of Gujarat. The Vadinar terminal, is an all-weather, deep-draft port, which provides crude oil and petroleum products storage, handling and terminalling services. The port has a 11

Single Point Mooring system capable of handling crude capacity of upto 27 MMTPA and marine facility for export of petroleum products of upto 6.5 MMTPA. The dry bulk port being constructed at Hazira involves setting up a 30 MTPA all-weather, deep-draft port and jetty facility. The port will have a berth of 550 meters length and an alongside depth of 12.5 meters. The proposed berth will handle the import of iron ore, pellets, coal, limestone and export of finished steel products. The port facility at Salaya comprises of setting up of a 10 MTPA marine material handling facilities to cater to the need of imported coal requirement and export of petroleum coke. • The Logistics business provides end-to-end logistics services – from ships to ports, lighterage services, intra-plant logistics and dispatch of finished products. It owns trans-shipment assets to provide lighterage support services, and onshore & offshore logistics services. It also operates a fleet of 4,200 trucks (of which 38 are owned) to provide inland transportation of steel and petroleum products. • The Sea Transportation business provides transportation management services for crude oil and petroleum products, and dry bulk cargo to the global energy, steel and power industries. With an experience of more than 220 ship years, it owns a diverse fleet of 25 vessels, and a further twelve New Building Vessels on order. • The Oilfields drilling business offers onshore and offshore contract drilling, and offshore construction services. The current fleet includes a semi - submersible offshore and twelve land rigs.

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Data analysis: ANALYSIS FOR 3 YEARS OF RATIO’s

RELI ANC E

CRMSi

SIC SICA AL L 200 200 8 7 998 131 .63 2.94 2 9 0.1 9.62 67 9 0.4 10.6 21 6 10. 9.65 452 2 13. 32.1 934 99

847. 359 10.2 5 12.8 55 8.60 4 44.4 74

CWIPSi

589 .88

918. 04

RATIO/ Company

DRMi DWIPi DFGi §(Rmi)

968. 43

901. 234 0.30 999 0.32 999 13.4 54 14.5 56

200 7 100 8.96 7 0.27 891 0.28 777 9.87 6 29.6 67

200 6 110 0.54 4 0.31 323 0.30 987 8.76 9 40.8 21

ESS AR 200 8 201 8.43 3 0.23 6 0.33 8 14.7 76 13.8 87

410. 667

590. 665

956. 994

678. 567

200 6 2008

13

200 7 245 6.75 4 2.66 7 4.99 5 10.8 76 23.8 34 774. 884

200 6 226 5.78 8.99 7 6.88 7 7.83 6 40.6 62 100 1.66 2

§FGi CFGSi Normalised cost of raw material Normalised cost at the end of raw material Normalised cost at the end of WIP Normalised cost at the end of finished goods ISCCi ISCSi ISWCi ISWCPi

0.5 93 590 .47 3 0.0 074 2 0.0 236

20.5 52

18.4 9

0.56 7

14.7 74

12.8 87

0.59

12.9 98

988. 982

411. 234

605. 439

969. 881

679. 157

787. 882

0.00 373 0.03 26

936. 53 0.00 515 9 0.04 74

18.7 55 102 0.41 7

0.00 456 0.05 56

0.00 334 0.06 27

0.00 567 0.09 94

0.00 225 0.03 36

0.00 654 0.06 67

0.00 348 0.07 76

1 10. 464 10. 464 0.0 185 47. 02 12. 006

1 35.1 6 35.1 6 0.03 51 207. 15 4.83 2

1 30.8 4 30.8 4 0.03 17 225. 01 4.31 9

1 23.5 4 23.5 4 0.01 94 33.5 68 17.7 73

1 45.5 5 45.5 5 0.05 49 336. 764 3.88 5

1 46.7 65 46.7 65 0.07 64 45.7 42 4.22 6

1 11.4 3 11.4 3 0.01 86 23.4 67 14.4 47

1 37.7 76 37.7 76 0.03 34 37.6 64 3.66 7

1 25.6 65 25.6 65 0.06 67 55.8 45 5.77 4

Table -1 2006 SICAL RELIANCE

DRM 847.359

DWIP

DFG

1100.544

10.25 0.31323

12.855 0.30987

TOTAL LENGTH 870.464 1101.166

ESSAR

2265.78

8.997

6.887

2281.664

LENTH AT THE

LENTH AT THE

LENGTH AT THE

TOTAL LENGTH

END OF RAW

END OF WIP

END OF FINISHED

The cumulative lengths are Table-2

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MATERIAL SICAL RELIANCE ESSAR

STAGE

GOODS STAGE

1100.544

10.25 0.31323

12.855 0.30987

870.464 1101.166

2265.78

8.997

6.887

2281.664

STAGE 847.359

Table-3

START DAY

SICAL RELIANCE ESSAR

1411.2 1177.680 0

LENTH AT THE

LENGTH AT THE

LENGTH AT THE

END OF RAW

END OF WIP

END OF

MATERIAL

STAGE

FINISHED

STAGE 2258.56 2278.224 2265.78

2268.81 2281.35 2274.78

GOODS STAGE 2281.664 2281.664 2281.664

Table-4 COST OF RAW

SICAL 350.29

RELIANCE 228.54

ESSAR 311.33

MATERIAL COST ADDITION IN

8.604

8.769

7.836

358.894

237.31

319.17

434.474

234.821

433.662

12.887

18.76

THE RAW MATERIAL STAGE COST AT THE END OF RAW MATERIAL STAGE COST AT THE END OF WIP STAGE COST ADDITION AT THE FINISHED GOODS

18.49

STAGE COST AT THE END OF

445.964

244.56

FINISHED GOOD STAGE

15

452.43

Table-5 NORMALIZED COST

SICAL .32

RELIANCE .19

ESSAR

OF RAW MATERIALS NORMALIZED COST

.33

.19

1.03

.99

.99

.99

1

1

1

.49

AT THE END OF RAW MATERIAL STAGE NORMALIZED COST AT THE END OF WIP STAGE NORMALIZED COST AT THE END OF FINISHED GOOD STAGE

COST OF HOLDING INVENTORY FOR TIME PERIOD I SICAL

13.31

INTERNAL

INTERNAL

SUPPLY CHAIN

SUPPLY CHAIN

MANAGEMENT

INEFFICIENCY

COST FOR TIME

RATIO FOR TIME

PERIOD I

PERIOD I

246.34

.20

RELIANCE

14.46

269.58

.15

ESSAR

59.08

339.29

.12

INTERNAL SUPPLY CHAIN

INTERNAL SUPPLY CHAIN WORKING

16

WORKING CAPITAL FOR TIME PERIOD I

CAPITAL PRODUCTIVITY FOR TIME PERIOD I

-154.89

-3.1

RELIA NCE

-108.07

-5.7

ESSAR

-394.52

-3.4

SICAL

SUPPLY CHAIN INEFFICIENCY RATIO 2006

2007

SICAL

RELIANCE ESSAR

17

2008

HOLDING PERIOD FOR THE FIRMS HOLDING

SICAL

RELIAN

PERIOD

ESSAR

CE

(NO.OF DAYS) 2006

2007

2008

2006

2007

2008

2006

2007

2008

54

30

44

56

58

46

26

27

35

WIP

5

6

4

1

1

1

4

1

5

FG

22

17

19

22

22

27

18

27

27

RAW MATERIAL

Cost Profile

18

CONCLUSION: The following conclusion can be drawn from tables: 1. Essar has the least days of raw material inventory. Also, this company has the lowest

aggregate length, i.e. the composite figure including days of raw material, WIP, and finished goods. 2. Sical has the least days of finished goods inventory. However the product stays as raw

material for the longest time in Cadbury. 3. Reliance has the longest days of finished goods inventory but the least days as WIP.

4. The aggregate industry profile shows that for the industry as a whole, the product stays in finished goods inventory for a long time and the companies bear significant cost in keeping the product as raw material. The result suggests that the companies strive to bring down the level of raw material and finished goods since there is no value added in these stages and the company has to bear the inventory carrying cost. Nestle seems to be successful in this objective. However, the product stays in WIP stage for the medium time for this company. This suggests that the company attempts to delay the product differentiation to the last stage of the production process. The above data analysis results point to the fact that looking only at internal supply chain working capital productivity parse would be myopic and would not capture the total performance of the firm .Total performance needs to take into account the partnering approaches of the firm, which is possible by examining the components of the internal supply chain working capital.

Reference: 1. Janet shah, supply chain management, 2009 2. PROWESS DATA BASE (CMIE). 19

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