RUSHING FOR WAREHOUSING
India, as one of the fastest growing economies in the world arena, is ready for a major take off in the warehousing segment.
June 1, 2011
It is not an overstatement to proclaim that India is in the grip of a warehousing revolution. Farm lands are proffered as potential warehouse sites across India in the run up to the proposed roll-out of National Goods & Services Tax (GST) regime that would break down borders and pave way for better distribution of goods and lesser tax complications. Business enterprises are eagerly awaiting the big event – should happen anytime next year – so that their distribution challenges are managed well and the most elusive customers’ delight is attained. Central Warehousing Corporation deputy general manager P E Prasad emphasizes that warehousing, comprising 20 – 25 percent of logistics business, is expected to touch US$385 billion by 2015. Just four years away from now, accounting for a compounded annual growth rate of a mind-numbing 21 percent. Where does it stand today? US$230 billion, if Prasad is to be believed. “Logistics industry is poised for high growth,” he says. Adds Prof Samir K Srivastava, associate professor teaching supply chain at Indian Institute of Management (Lucknow): “The warehouses are transforming fast from dilapidated, simple and non-descript buildings in the vicinity of octroi posts to state of the art plush facilities. This is a much awaited welcome change for Indian logistics and supply chains.” Why this sudden urge or craze to embrace warehousing with such a fervor? Hyderabad-based Sundar R G, vice president, product strategy & alliances, at eBizNET Solutions, said: “Logistics and supply chain excellence will be the key to driving the growth of the manufacturing base in the Indian economy. To be competitive, Indian shippers will need to substantially reduce the logistics cost and cut down supply chain wastes. Costs of non servicing customers have a direct and tangible cause and eff ect relationship with business continuity, especially given the global spread of operations.” This is a compelling reason for manufacturers, importers, exporters, wholesalers, transport businesses, customs etc to view warehousing with a seriousness it deserves, but neglected for too long. Until a few years ago, warehouses never formed part of the lexicon or vocabulary of anyone. It was always godown – shanty raised platform in some godforsaken place with an asbestos or tin roofi ng with poor ventilation and unhygienic facilities even for goods. Moreover, warehouses were basically used for storage of agri-produce such as rice, wheat, pulses, etc. Given the fact that India is still an agrarian economy in the sense that a major chunk of Indians still live and survive on farming and famine used to be a major challenge even in the independent India for several decades, warehousing purely was a federal and state level government activity to provide food security. Private sector participation was unheard of. That is the reason, even today, the newly set up Warehouse Development & Regulatory Authroity (WDRA) has no time for non-agriculture arena. Maybe later, one hopes so. AREA OF INTEREST Industrial warehousing is a newly emerging area. Out of US$230 billion, industrial warehousing accounts for a paltry US$25 billion. It is estimated that 433 million square feet of warehousing space would be ready for industry purposes by 2012. According to government data, there are four segments: agriculture (wheat, rice, maize and cotton), liquid & gas (oil, chemical, gas and petroleum products), industrial (auto components, IT components, FMCG, pharmaceuticals and textiles) and multi-products. A slew of issues are making warehousing the new El Dorado for potential investors.They are: • Robust GDP • Government’s strong focus in 11th Fiver Year plan o In-principle decision to construct 16.5 million tonnes of strategic storage o Food Corporation India plans to spend ~Rs.166 Crores for construction of Godowns. o Priority sector lending by Banks extends to cold storage and warehousing • Increase in EXIM trade and organized retail business o Deloitte Haskins and Sells, organised retail has increased its share from fi ve percent of total retail sales in 2006 to eight percent in 2007. • Introduction of Free Trade & Warehousing Zones (FTWZs), • Expansion of Railways (DFCCIL) • Food Parks, Mega Food Parks being encouraged • Warehouse Development and Regulation Act 2007 • Growth in new marketing systems o Commodity Exchanges o Spot exchanges Today’s warehouses are equipped to carry out a host of additional activities such as selective racking and block storage, cross docking, temperature control, kitting/light assembly, repacking, labelling, palletising and other value added services such as specialised transport, duty and tax determination, complete documentation preparation, expedited customs clearance, tax exception and license application, adds Prof Srivastava. Logistics Parks are another area of interest. These parks are nothing but spacious warehouses with the best loading, unloading facilities and function mostly like regional distribution centres – a key element of effi cient supply chain management. From supply chain management perspective, in addition to improving internal effi ciency, a real-time view of inventory and warehouse activity can improve customer satisfaction by facilitating timelier and more accurate shipping. It also allows companies to simplify tracking of hazardous and date-sensitive materials for improved regulatory and recall compliance. So, focus of fi rms should be on categories, volumes, accuracy, visibility and integration. They need to make smarter use of existing space to avoid costly expansions. Government owned Indian Railways is also jumping into the fray with its own Central Railside Warehouse Company Ltd (CRWCL). OVERCOMING CHALLENGES Automation is slowly creeping in to improve performance indices. G S Ravi Kumar, chief information technology offi cer of Gati Limited has to encounter six major challenges while setting up and operating 3PL warehousing in India. “The fi rst and the foremost was the right WMS (warehouse management system) for our warehouse operations. There are quite a few software in this area which are world class, however either they cater to well developed and automated warehouse operation and/or very expensive. The second area was that every customer had a diff erent requirement, which means one WMS solution was not fi tting all. We had to customize the WMS for every customer’s special requirement. The third area was the diff erent customer’s requirement of data exchange from their ERP system to WMS and from WMS to ERP. We created the right architecture for movement of data smoothly from the customers ERP – WMS – ERP. Fourth key area was the seamless integration of WMS with core express distribution software. Fifth key area was automating using barcode for the put away, pick operation and stock taking, the challenge here was not the technology but the products of the customer which did not have barcode labels as such, which meant that we generate our own barcode labels when the package enters the warehouse. These challenges can be addressed only if we have the right trained and skilled manpower; this was defi nitely the biggest challenge of training the resources on quite a number of software procedures and process, handling the put-aways and pick list against time using automated and non-automated solution and most importantly retaining the manpower.” Amit Dhingra, country manager, Menlo Worldwide, India, shares his own perception on the technology front. “It is important to understand the WMS technical support available in India. If you have not understood the fl exibilities available in system and costs related to the same, it becomes challenging to get maximum advantage from a WMS in a longer term. We have seen organizations struggle with confi guration and customization during WMS installation. The challenge can lie with the inability of the WMS to handle new business requirements driven by changes in the business or government policies. In a country like India with a complex tax structures and regular policy changes, it is important that a WMS should have capability to upgrade these changes within a limited period.” CWC Prasad lists out the biggest challenges in developing a new warehouse culture in India. They include lack of aff ordable land at desired locations because diff erent states have diff erent rules regarding land acquisition and landowners are typically fragmented; complex tax structure; clients do not have participatory approach; inadequate infrastructure – connectivity; lack of standardization of warehouse specifi cations; lack of trained/ professional manpower; and, legal impediments in the agricultural sector. This should not deter us, say various experts. No doubt, organized warehousing is in nascent stage. It is estimated that the market size would grow at eight-10 percent over next three years. While industrial warehousing is expected to grow at nine-11 percent, agricultural warehousing will grow at three-four percent, according to CWC Prasad. Phasing of CST in 2011 – 12 will encourage construction of large warehouses; signifi cant investment in Free Trade Warehousing Zones and multimodal logistical parks are expected to sprout at a brisk pace. The biggest agri-industry combined warehousing will come up to the tune of 10 million tonnes of cold chain, pack houses and ripening chambers by 2012. This is a big boost, claim observers. “Upfront investment is going to be high, but operational costs will be low. This could be three or fi ve or seven years long. So this is like a manufacturing investment,” points out Saurabh Goyal, managing director of ThinkLink, a supply chain consultancy fi rm. SMOOTHING THE WAY To give a real big boost to warehousing, the federal government is positively considering various measures. It is believed that pure agriculture warehousing has pay-back period of 12 – 14 years, and considering that the usage commitment period should be about 20 years to give reasonable returns on investment made. On the tax front, there are suggestions that warehousing sector should be considered as infrastructure sector, and made eligible for 10 years’ tax break and certain amendments be made to obviate payment under Minimum Alternate Tax. In order to encourage larger entities / corporate to participate, assistance should be provided to acquire or to give land on long term lease from government, say policy buff s. Cheaper debt be made available – particularly for agri warehousing – given its impact on the poor farmers. Meanwhile, the trend in warehousing is perceptible. There are three set of players who are eyeing this sunrise sector. Primarily, there are pure vanilla real estate players. Either they have agricultural land already in possession or capable of acquiring them without much ado. These vast acres of land can be contracted from them by parties interested in setting up warehouses for a fee to be paid over a period of time. These pure vanilla players are more interested in rental income from warehousing operations and have no interest or say in whatsoever segment – agriculture or industry – these warehouses are put to use. The second set of players is mostly big business enterprises who are interested in renting out warehouses, built by others and desiring to operate on their own, total lack of interest in allowing others to manage their warehousing operations. The third category is those, possibly enlightened lot of big players again who resort of 3PL route. That is to say, they outsource their warehousing and distribution operations (both preproduction and after market services) to established 3PL service providers. With India Inc attaining maturity, the 3PL route is gaining momentum. For instance, Menlo Worldwide provides 3PL warehousing services to General Motors from various locations – both for inbound as well as aftermarket. Or for that matter, Om Logistics’s fully owned telecom subsidiary accounts for almost two-thirds of telecom 3PL services in India from multi-locations. MJ Logistics, another interesting 3PL player, takes charge of Tata Motors’ after market warehousing services in the northern India. It is pertinent here to draw attention to the ongoing debate on the pure vanilla vs valued added services format. Soman Nambiar, an ex-Ceva Logistics top honcho who provides consultancy selectively, says that he is approached by reputed names in the Indian business hemisphere with a request to guide them entering warehousing operations. What’s that they have? A large tract of land in the near vicinity of one of the many new industrial hubs: Outskirts of Bangalore, Baddi in Himachal Pradesh, Rudrapur in Uttarakhand, Baroda in Gujarat, Chakan in Maharashtra, Oragadam in Tamil Nadu etc. “Besides land, what they can bring to table is still unclear,” he says. Rinku Agarwal of Rinku Commercial Carriers, which manages Mahindra Tractors’s stock yards in multi-locations (Anand, Gujarat; Nagpur, Maharashtra; Vasai, Maharashtra etc) says: “Pure vanilla operations do not make any business sense. There is very little money to gain by letting out space on rental. On the other hand, value added services is lucrative.” But he hastens to add that value added services is no child’s play and it demands “more than 100 per cent sweat and dedication.” Should it be a multi-user or single user facility? Warehouse owners would prefer single user purely due to less complications at the operational level. Lease out the entire space to one single customer and relax. Not all warehouses that have come into existence are lucky enough to enjoy this sweet pill. Per force, they are compelled to resort to multi-user route. Areas are earmarked for storage and docking and cross docking facilities with specifi c time windows are provisioned for. Many players who are dealing with multi-users subtly hint at concerns by users on proprietary issues, rivals getting to know the stock positions and market intelligence of their respective wares. There is a school of thought that claims that market intelligence would be operational whether one has access to multi user warehousing facility or otherwise because there are several avenues to gain valuable information. India, as one of the fastest growing economies in the world arena, is ready for a major take off in the warehousing segment. Leave alone the export demand of storage and shipment, the urgent need is to cater to the domestic demand for variety of goods. Given the vast size of the Indian subcontinent, reaching out to the nooks and corners is no easy task. With the GST kicking in sooner rather than later, the stage is set for a big boost to retailing and distribution. The emergence of new industrial hubs away from the traditional manufacturing bases also acts as a harbinger of change in the right direction. The government’s grandiose plans to push up the contribution of manufacturing from 16 to 25 percent over the next decade as a palliative to generate greater employment opportunity, more products will be expected to trundle out of assembly lines to satisfy every need of the potential customer ranging from toiletries to passenger car. Easy bank fi nance and substantial disposable income in their pockets, customers are going to be choosy and, above all, will be in a hurry to lay their hands on their most cherished products. Business enterprises that cannot off er them what they want instantly will lose them out to their rivals. That’s where regional distribution centres or warehouses one may wish to call are going to play a very big role. Businesses without adequate warehouses will be signing their own death warrant. Nobody wants that. The private equities interest in pumping huge dollops of money into Indian warehousing scenario and logistics parks of gigantic proportions has to be viewed in this light. Hence, the mad rush to get a slice of this business activity is to be expected. —————————- Big Players • Arshiya International • DHL • Global Forwarding • Gati • Hitech Frozen Facilities • National Bulk Handling Corporation • National Collateral Management Services Ltd • Samridhi Bio Energy • Shreyas Shipping • Suri Agrofresh • Om Logistics • DB Schenker • AFL Logistics • Robinsons Global Logistics • Allcargo Global Logistics • CCL Logistics • Jayem Logistics • MJ Logistics • Sri City Pvt Ltd • Shree Subham Logistics • Aparna BPO Services • Orange City Logistics Park • Multimodal International Cargo Hub & Airport Nagpur (MIHAN) • PBEL Property Development India Source: Logistics Times, India —————————- Facts At A Glance • Dominated by public sector entities • Central Warehousing Corporation o Operates 474 warehouses across the country. o Manage storage Capacity of 10.20 MMTs o Holds 50 percent equity in SWCs • State Warehousing Corporation o 1,586 Warehouses o Storage Capacity of 21.05 MMTs • Food Corporation of India o Manages storage capacity of 28.84 MMTs • National Bulk Handling Corporation o Manages 13.1 MMTs of storage capacity Source: Centre Warehousing Corporation Ltd, India —————————- ENHANCING EFFICENCY AND QUALITY Marc Wijnen shares with LIA Logwin’s experiences in automated warehousing. Q: How many warehouses does Logwin operate in the Asian region? A: Logwin is operating in 11 countries of Asia and thus running several warehouses in the region, using both in-house operations as well as outsourced. The main focus is South East Asia with facilities in Kuala Lumpur, Singapore and the Philippines. For Far East Asia the main areas for development are in Hong Kong and Southern China and generally across China. There are also plans to further develop in Australia and Indonesia. India is also a target market for expansion. Q: Detail the broad sophistication of these warehouses. A: We mainly operate manual warehouses, of which some are equipped with very narrow aisle (VNA) equipment. All our warehouses are supported by a centrally deployed warehouse management system, which enables us to have the same high effi ciency standards throughout our worldwide logistics centres. With a wide variety of picking strategies and automated put-away, based on ABC categorization, we achieve a high degree in productivity. Q: How important is it to have automated storage and handling functions in the warehouse? A: This all depends on the type of client base in combination with contracts. The need for automated storage and pick and pack handling systems arise mainly in Europe and the US, due to high labour costs. On the other hand, when dealing with highly volatile or seasonal clients or industry sectors where delivery time is crucial then automated pick and pack systems become an interesting alternative, as using manual labour is not the long term solution and can sometimes be counter-productive. In a 3PL environment, we have ever changing parameters, due to the multitude of customers with diff erent products and diff erent peak seasons. As a result storage space is utilized by various commodities. A fully automated environment means less fl exibility and therefore we need to be realistic when thinking about automation. For facilities which cater for one client over a long contract period, automation defi nitely makes sense and we take full advantage of available technology to increase effi ciency in those cases. Q: Detail specific equipment and systems used in Logwin warehouses. A: Logwin does operate a pick-by-light unit, pick and pack line in Europe for customers in the cosmetics industry and this knowledge is developed and shared within the Logwin organisation. Q: Does Logwin have specifi c relationships with certain equipment and systems vendors? A: Logwin does not work with specifi c vendors or suppliers of material fl ow systems and we determine the optimal vendor or supplier for each solution. However, in terms of IT equipment we try to follow certain standards, but this also depends on local availability in the respective countries. Q: What kind of benefi ts does warehouse automation bring to Logwin’s operations? A: The benefi ts for using automation in the warehouse can vary from fi nancial benefi ts but also make us less dependent on personnel. In addition automation enhances effi ciency and quality there is also less pressure on the outbound / export side of the warehouse operation, as through the automated system the bottle neck can be relieved by accessing the inbound system for example. Q: What kind of in-house expertise does Logwin have in terms of warehouse design and automation? A: Logwin has many years of experience with a team of engineers and project managers for implementation of such systems as well as the in-house knowledge of the operations managers working in their daily profession in warehouses and working with automated systems. Q: What are Logwin’s future plans for warehouse construction in Asia? A: Logwin’s strategy is to lease/ rent warehouse space, the company is an asset-light organisation and does not want to own property as this makes the organisation fl exible in terms of the changing global economical needs and customers demand. Logwin sees Asia as one of the fastest developing regions in the world and will continue to expand in this region in the future. Marc Wijnen is director global logistics at the Logwin business segment Air + Ocean.