The Upward Growth Curve After Demonetization

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2016 has been an exciting year for the Indian logistics industry — from GST to startups, with each development enhancing the logistics industry to be more efficient and effective. Perhaps, 2017 plans to filter out the ones with sustainable business models.

The instant demonetization policy is speculated to be a boon to the logistics industry as it is highly reliant on e-retail and online ordering. Cashless transactions and a digital India-push will consequently drive growth in hyperlocal logistics, which will necessitate innovation and disruption in the last mile logistics space.

But, a Kargil war veteran says plying trucks on the highways is worse than driving trucks for the Army, “In the Army, life was not assured, but at least your next meal was,” he says, with exasperation.

Industry estimates that about 75,000 trucks are still stuck on highways due to the currency shortage. In the first week after demonetization, about 4 lakh trucks were stranded across the country.

For Nawany Corp, a Mumbai-based logistics and trucking firm with 150 vehicles, which primarily serves the cement majors, the business is down by 25-30%.

Chairman Ashok Nawany said that the trucking business is driven by cash-in-hand for drivers, but with liquidity under stress, business has suffered.

Some banks that provide working capitals loans and other loans to the transportation sector, have placed facilities such as overdraft on hold. Banks have started negatively rating transporting companies, he said.

A section of bankers has taken a view that demonetization has hit the ability of the transportation companies to pay back loans.

“As the month end is approaching, salary time is coming closer, but banks are hesitant about providing short-term debts,” Nawany said.

For Vice-Chairman of Patel Roadways, Areef Patel, who manages 1,500 trucks for his company, business has sunk by 40 per cent since the November 8 announcement. Patel wonders how it would be possible to provide 1,500 credit cards to his drivers overnight for travel expense.

City Link (A subsidiary of Jayem Logistics) at point-blank range

Unlike what City Link’s next competitor is perceiving about a 25% drop in 2017-18 due to demonetization, a 15-20% dip in demand or a drop of 50-60% for most of the businesses, City Link (www.city-link.co.in) is certain about 30-40% growth in (In – City trucking business) in 2017 -18. Now, the “demonetization” monster has packed home a bunch of doubts for the trucking industry. Either banks are keeping loans to the transportation sector on hold or trucks are stranded on highways due to demonetization. Thus, due to toll booths, they incur losses of more than Rs. 1,45,000 crore a year. Still, why does City Link predict growth in 2017 – 18 despite demonetization in the trucking industry?

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“It’s just a temporary phase. If banks don’t facilitate the loan process, then the financial intuitions will come to the truckers’ rescue. Yes, we need to eliminate the toll booths and grow.

City Link isn’t affected because of its initial online payment setup. To beat demonetization, one must deal with monthly recharges at toll booths. That’ll automatically reduce delays and losses.

In demonetization lies the essence of growth, as today’s generation hates cash and not really call a truck to pay a meagre amount for every order placed. Thus, it’ll help, inspire and enhance the revenue figure for all tech-savvy as well as online consumer demand aggregation firms.

The vantage point presented by City Link is promotion of digital literacy. Now, isn’t that in everyone’s interest?” highlight CityLinkers.

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Shutting toll booths with money

A national association of truckers has offered to pay the central government Rs 20,000 crore every year if the government suspends toll collection across India, in a clearest indication yet of the pain point the toll booths have become in the smooth conduct of commerce in the country. Speaking to Mumbai Mirror, Amritlal Madan, chairman of the coordination committee of All India Motor Transport Congress (AIMTC), who was part of a delegation which put the proposal before Union Finance Minister Arun Jaitley on November 18 in Delhi said that, slowed traffic movement due to toll nakas means only 50% of the country’s commercial vehicles are on the roads at any given point of time. “According to our information, the total toll collection in the country in 2015 was around Rs 15,000 crore, we are ready to pay Rs 5,000 crore above that figure,” Madan said. He said that the AIMTC had earlier made the same proposal to Minister of Road Transport and Highways Nitin Gadkari, but thought the chaos caused by demonetization of Rs 500 and 1000 notes provided the truckers’ association an opportunity to reiterate its case. AIMTC represents over 90 lakh truckers, and more than 50 lakh bus operators, tourist taxis and maxi cabs. According to AIMTC’s estimates, the transport industry loses over Rs 1,45,000 crore a year due to fuel burnt by idling commercial vehicles at toll booths and the time lost. “We will happily part with Rs 20,000 crore and the government could revise this figure every year, but the losses we are suffering because of toll booths are crippling,” said Madan.

A joint study conducted by the Indian Institute of Management, Calcutta (IIM-C) and Transport Corporation of India (TCI), a leading transport company, had revealed that the average stoppage expenses per tonne-per km increased 133.33% in 2014-15 over 2011-12.

 

How about recuperation?

The Centre’s November 8, 2016 announcement to scrap the high-value notes has had an undeniable impact on across various segments of logistics industry including freights, customs and clearance industry. Many employees have been laid off because in this unorganized sector most of the transaction is made using hard cash. The demonetization drive has compelled many truck companies to cease operations, citing reasons that they had no hard cash to pay to their drivers. Since then, the traders and exporters have held several meetings with the relevant stakeholders, following which it was decided that henceforth payments will be made either by cheque or electronics transfer; a reason Ashwini Kumar, a truck driver is quite ecstatic about.

Following the announcement, the movement of cargo was either stalled or moving at a snail’s pace. The freight industry uses hard cash for undertaking most of its payments-related activities, including making payments for the daily expenses of drivers and workers, diesel, local taxes, and tolls. The scarcity of high-value notes, however, slowed down the movements of goods across the country, leading to an indefinite delay in the delivery of exports consignments. Some industry analysts said the demonetisation decision has resulted in the lack of money flowing into the market, leading to a 75% decline in their transport business. Following the currency blackout, around 60% of freight movement came to a standstill.

The industry, however, has welcomed the government’s ideas of promoting a digital economy and curbing the ongoing corruption and is unfazed by its long-term negative impact. It said its businesses and activities at ports, customs and clearance are now coming back to normal. “Overall impact on ports, custom-officials and clearance industry has not been so much as generally felt that the demonetization exercise would de-rail the “Smooth Process” in their regular business operations. The impact will be only to a very limited extent,” said P S Atree, President, Delhi Customs Clearing Agent Associations. Atree said the Customs Department also took the initiative to minimise the ill-effects of demonetization by accepting old currency notes for paying old dues or demands raised by several departments of customs.

To deal with the cash crunch and minimise its impact, several logistics companies have already initiated bank transfers for the reimbursement of their staff for their conveyance, incidental expenses, while making transactions through RTGS/cheques for covering day-to-day expenses including monthly rental, utilities, and other service charges. The majority of other trade-related charges i.e. customs duties, airlines/shipping is made by the NEFT/RTGS/cheques.

 

The Current Impression

Two months after the government’s sudden decision to scrap Rs. 500 and Rs. 1,000 notes, Finance Minister Arun Jaitley on Sunday said that its impact on the economy would be “transient” but in the medium and long run, the GDP would be “bigger and cleaner” and it will also help lower interest rates.

While conceding that demonetization has been “disruptive”, he said, “All reforms are disruptive. They change the retrograde status quo. The demonetization puts a premium on honesty and penalises dishonest conduct.”

After demonetization, several aspects of the road transport industry are expected to come into the formal economy. Already, the number of cash transactions has come down and digitization is happening across the physical, financial and information flow. Human inefficiencies in terms of loading times and getting through tolls and check posts have been reduced.

Year-On-Year Success Because You Only Live Once

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“What top supply chains have in common?” is not a secret potion anymore.

After a 10-year absence from the Top 25, hardware retailer Home Depot made it back onto the list, thanks in part to the emerging popularity of omni-channel distribution. Home Depot’s introduction of 18 rapid deployment warehouses and three direct fulfillment centers will, the company claims, allow it to ship products to 90% of U.S. households within 48 hours. As Gartner’s analysts also note, the retailer has put into place a vendor source program aimed at tapping into VMI stocks.

Every year for the past 11 years, Gartner has conducted a poll of its own analysts, as well as a peer group of 200 or so supply chain practitioners and experts, to determine which companies have the best supply chains.

Not every company in the world is considered, of course, as Gartner begins the ranking process by focusing solely on public companies, since some of the metrics that go into the rankings are based on publicly available, audited financial data such as three-year weighted return on assets and three-year weighted revenue growth. And not every public company is considered, either, as Gartner narrows the field to companies in the manufacturing, retail or distribution sectors.

But, the field gets winnowed even more before any serious consideration is given to individual companies because Gartner does not include energy company, or oil & gas, or mining, or metals, or shipbuilders, or entertainment, or IT, or logistics companies or transportation companies, or utilities. Also, Gartner has some weird biases against certain companies and how exactly they make their money. That’s why you won’t see supply chain giants like IBM, Disney, UPS or FedEx in the Top 25 list. So, it’s not really a ranking of the Top 25 Supply Chains in the world so much as it’s a look at 25 public manufacturers and retailers who are really good at supply chain management.

With those rather large qualifiers taken into account, the Gartner list has been a pretty reliable benchmark for the past 10 years.

As observed in the past, the notion that these 25 companies have the very best supply chains in the world is a flawed concept from the very get-go since there are so many exceptions to the rankings. For instance, only large, multi-national, public companies are part of the Top 25. Also, many of the companies you would immediately think of as being supply chain experts (UPS, FedEx, IBM, Disney, Google, et.al.) are omitted from consideration for one reason or another.

The CSR scores immediately raise a flag when you discover that Amazon’s score is 0.00, which probably cost the online retailer a chance to repeat as #1 this year, mostly because Amazon doesn’t issue a CSR report as many other public companies do.

How To Stand Out From The Rest?

  • Look beyond foundational knowledge

One needs to develop skills by leaning on others who have experienced these pains firsthand. This experiential know-how is a springboard to develop more holistic solutions that ultimately create value for your customers.

  • Align business strategy and ethics

Consumer picks up a product, being assured that the physical good comes with the implicit values. While cutting cost is extremely important, sacrificing business ethics isn’t favourable. So, one must bear that in mind for all people- and product-related decisions to be made along the way.

  • Develop financial acumen

Financial acumen involves much more than cost-reduction programs. One must consider company’s cash flow as the fuel that keeps operations running and total inventory as your biggest opponent on the positive cash flow mission. In order to excel in financial acumen, one must develop a data-driven financial mindset and learn to become comfortable discussing supply chain levers and their impact on the company’s financial performance.

  • Communicate to influence

When speaking to shift leaders about next week’s production plan, thinking about their needs and pressures, as well as how proposed changes may benefit them is essential.

  • Innovate through new technologies

Planning, production, delivery, service. It seems straightforward on paper, but professionals know the complexities involved across the supply chain, and nothing ever goes 100 percent according to plan. Minimizing risk, cutting cost and planning for the unexpected is the difference between good and great supply chain managers.

To the contrary, if a “master” company were to fall out of having a top five composite score for long enough, they would lose this designation and be considered as part of the Supply Chain Top 25 ranking in the same way as any other company in our study. All of that said, both of last year’s inaugural masters, Apple and P&G, qualified for this category again.

Apple continues to succeed by offering platforms that ecosystems of partners build upon to meet customers’ needs, whether that relates to core product features such as access through touch-based security, media content and applications or third-party accessories that convert its products into smart diagnostic devices or payment terminals.

Consumer packaged goods (CPG) giant P&G is our other returning master. P&G received a top five composite score in 2016, marking an impressive nine out of the past 10 years for this accomplishment. For the majority of its products, P&G is running an end-to-end synchronization program.

Every part of the supply chain operates based on the daily cadence of consumption, in some cases triggered by demand at the shelf. Supply chain also plays an active role in P&G’s move toward common product and packaging platforms, where standards are set globally and a more limited menu of options is selected regionally, as required.

The supply chain team brings data and analysis skills to the process, with the ultimate goal of increasing the value that each active SKU contributes to the company.

Both Apple and P&G continue to offer advanced lessons for the supply chain community.

The Top Seven Drivers

We have a new No. 1 this year. Unilever, the Anglo-Dutch CP giant, has steadily moved up the rankings over the past several years and is very well regarded by both the peer and analyst voting panels due, in part, to its willingness to share best practices with the broader supply chain community. The company is a role model when it comes to Corporate Social Responsibility (CSR) and scored a perfect 10 out of 10 on our new CSR component.

Returning at No. 2 is McDonald’s. The well-known restaurant chain staged a comeback in 2015, paring unprofitable locations and menu items and introducing its popular all-day breakfast offering. McDonald’s supply chain actively participates on both product and menu category teams to help shape the portfolio and better plan for new initiatives. McDonald’s

Amazon dropped to No. 3 after its first ever appearance at No. 1 last year. The main driver was Amazon scoring zero out of 10 on our new CSR measure. The company is known for having a secretive culture that has historically extended to a lack of transparency on supply chain sustainability and governance performance measures. Amazon, of course, continues to be a leader when it comes to innovation in its products and supply chain.

Intel remained in the top tier of the ranking this year at No. 4, based on a relatively high return on assets (ROA) and strong opinion poll scores. Intel’s supply chain is also acting as a test bed for new products offered by its IoT group, using this technology to improve the visibility and coordination of complex inbound capital equipment deliveries and outbound product shipments to customers.

Rounding out the top five group this year is H&M at No. 5. The Swedish fast-fashion retailer climbed two spots on a combination of extremely strong three-year weighted average ROA (25.3%) and revenue growth (16.3%) and a nine out of 10 for CSR, reflecting its strong record in sustainability and workers’ rights. In 2015, its founding family launched the H&M Conscious Foundation, which presents a Global Change Award as a fashion industry innovation accelerator for sustainable clothing.

Movers and Shakers: No. 6 through No. 15 At No. 6, is Inditex, Spain’s leading fashion retail group best known for its Zara brand. Inditex posted similar strong performances in three-year weighted average ROA (16.7%) and revenue growth (11.2%) and scored nine out of 10 for CSR. The Zara brand has been quite successful in its e-commerce business, particularly in the U.S. Inditex’s culture is very team-oriented and focused on having talented practitioners run the business using best-in-class processes versus the personality-driven cultures often found at fashion houses.

Networking pioneer Cisco is No. 7. Concurrent with Cisco’s changing of the guard at the CEO level last year, it created a new role managing both supply chain operations and the IT group, reflecting the high use of technology in managing supply chains. One area where Cisco has leveraged technology along with process improvement is in supplier collaboration.

Keeping It Evergreen

What differentiates the leaders is that they have moved beyond the discussion phase to make the hard changes that are required throughout the organization.

  • Outside in focus. Most companies think they are demand driven and focused on the customer, but the two concepts are not identical. You can be focused on the customer from either an outside-in or inside-out mentality. Leaders start with the customer experience of their supply chain and work their way back through their supply chain designs for an appropriate, profitable response.
  • Embedded innovation. Indicates a supply chain’s close integration into product lifecycle management both internally and with up and downstream partners. There is also the ability to innovate supply chain practices. This means not only adopting and adapting others best practices, but also breaking the rules, defying conventional wisdom and writing new rules for the supply chain community, as a whole. These companies are not afraid to experiment, fast fail in some areas and drive competitive advantage in others.
  • Extended supply chains. More mature companies are managing multi-tier networks with strong visibility and agility to support rapid changes in demand or disruptions in supply.
  • Excellence addicts. Are never satisfied, even if their performance in an area would be considered world class by objective standards. Most often there is an underlying culture driving this behavior and strong governance mechanisms managed through centers of excellence.

In the years past, these “top 25” type of lists are basically popularity contests, which accounts no doubt for Apple appearing at the top of the list for the past six years (by way of comparison, note that just a few years ago, when Blackberry was the cellphone of choice for business users, RIM was sitting pretty in the Top 10, but now is nowhere to be seen on the list. Fame, even in the supply chain, can be fleeting.)

Reason For Apple’s Fall

As technology is dynamic, so must be the firm. Taking the widely applicable example, considering the U.S market, Samsung was a nobody in the mobile phone arena, since Blackberry dominated the game as a niche player in business phones. As years passed by, Apple gained significance with its “touch” magic and mind-blowing designs. Facing a stiff competition by Apple, Blackberry disappeared in its looming shadow as they could not upgrade their technology and research. Soon, it was outdated as majority of the cell phone users switched over to Apple and the upcoming Samsung devices.

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But, to many’s surprise, Samsung brought in its unmatched variety and user-friendly philosophy into being, which definitely pinched Apple there. From scooping up the #1 share in 2010 in Gartner’s annual top supply chain ranking list, it has shown no visibility in that of 2016, reason being its classification in the low quality product category.

In identifying the market needs and arriving at the relevant solution is not everyone’s cup of tea. Jayem Logistics analyses that the Apple supply chain perhaps lacks product range, whereas BlackBerry has taken a backseat due to poor advertising strategy and meek approach towards upgradation of their app store and designs.

 Hence, Android wins the worldwide popularity vote, with its seamless user interface.

Retail giant Walmart covers the whole gamut of supply chain initiatives, from omni-channel distribution to sustainability scorecards to the Walmart Advanced Vehicle Experience, a hybrid, aerodynamic tractor-trailer prototype.

One of the goals of the list, according to Stan Aronow, research vice president at Gartner, is “to offer a platform for debate, learning and helping the supply chain community push the envelope of innovation in its contributions to the global economy.

After all that whittling down, only 298 companies worldwide are eligible for the Top 25 list, so if a company makes the initial cut, they’ve got better than an 8% chance of making the Top 25, assuming everything else is equal (which of course it isn’t, since the vast majority of companies in the final list are household names). As Gartner admits, the list of companies that make the Top 25 are mostly consumer goods and high-tech companies. Industrial manufacturers in particular have a tough time cracking the list, and not a single automotive firm is on the list.

According to Gartner, the three trends that all supply chains had to deal with over the past year, and that the best companies dealt with better than most, were resiliency (particularly dealing with the Japanese earthquake and tsunami), simplification (i.e., reducing complexity in product design) and the shift to multilocal operations.

“Many companies focus primarily on supply chain execution,” Hofman says. “With ever-increasing unpredictability of demand, leaders also focus on improving their ability to sense changes and patterns in their environment—changes in demand, design, supplier risk and more—earlier than their competition.”

“In designing your own supply chain strategy, take a cue from the leaders: Work outside-in, starting with your customers and working your way back and around your network of trading partners to design a profitable response,” O’Marah says. “Remember that one size does not fit all, define how many supply chain types you have, and design a customized response for each.”