Logistics is a lifeline of the cement industry

– Dr Girish Mehta of Shree Digvijay Cement Company

Can you elaborate on the importance of logistics in cement industry?
Cement being a low cost and high-volume commodity, logistics is the most important part in cement industry as almost 30 per cent of the cost of cement is involved in logistics. But it is much more in the Northeast part of the country, since it is hilly terrain, transportation cost is very high, which can be more than 40 per cent of the cement price. Efficient logistics management has played a very crucial role in terms of the profitability, efficiency and delivery of the materials to last mile/end users. In short, logistics is a lifeline of the cement industry and you cannot imagine cement industry’s best performance without best logistics/supply chain management.

What has been the journey of logistics in the last 25 years? What specific changes have occurred other than the cost?
As per my view, the major changes in the last 25 years in supply chain management (logistics) are given under:
Globalisation: The business landscape is rapidly becoming more global. Largely due to improvements in communications, globalisation is dramatically impacting the way business is managed and transacted, even on the most local levels. No area of a business is more affected by the trend to a global business environment than the supply chain. Manufacturing, distribution, sourcing of materials, invoicing and returns have all been significantly impacted by the increased integration of a global customer and supplier base, and many companies find that existing processes and technology are not flexible enough for this new business environment.

The right supply chain design is critical to managing the changes brought about by rapid globalisation. The thought-out supply chain network design can optimise the supply chain network and the flow of materials through the network. In doing so, network design captures the costs of the supply chain with a "total landed cost" perspective and applies advanced mathematical technology to determine optimal answers to both strategic and tactical questions.

Demand driven manufacturing and supply chain management: The capacities for manufacturing have increased, more companies have moved away from focusing efforts on plant-level production planning and are adopting more of a demand-driven focus of trying to influence and manage demand more efficiently. Rationalising what your company is best at selling, making and delivering, and aligning the sales force with that mindset, is critical to adopting a demand-driven model.

The demand-driven approach can help a company create a more customer-focused mindset, without sacrificing operational efficiency. Ultimately, a demand-focused approach to planning can significantly improve demand planning and management efforts and help overall costs and customer service efforts. Goals are then set to gain consensus on what will be sold each month for each product line or category and the resulting revenue. Of course, the driver of the demand review process is continuous improvement of forecast accuracy. Critical to the success of any demand plan is having all stakeholders, including sales, marketing, finance, product development and supply chain agree upon a consensus demand plan. It’s important for all participants to discuss factors affecting customer demand patterns Increased competition and price pressures: Historically, price, product features and brand recognition were enough to differentiate many products in the marketplace. With the continued commoditisation of many products, companies need better ways to distinguish themselves. Product innovation and brand equity no longer allowed them to command a higher price in the market. In order to continue to compete with that commoditised product the firm made significant cost improvements with supply chain redesign and technology.

Companies are looking to their supply chains in two ways to help offset this trend. First, they are looking at ways to reduce cost and are creating a more efficient value chain to remain cost competitive. Second, companies are looking at ways they can provide value-added services to meet the demands of more sophisticated customers. There are a number of ways suppliers can differentiate themselves and provide value and additional services and capabilities to their customers, such as:

Companies should not only look to their supply chain to drive cost improvement but should increase capabilities as a means for staying competitive. Streamlining processes with better design, better collaboration across networks and new services will help your company stay competitive and strengthen relationships with your customers.

Outsourcing: As many companies step back and examine their core competencies some realise that outsourcing in parts or entire supply chain can be advantageous. There can be significant economic benefits from outsourcing all or part of your supply chain operation, but without the right systems, processes or organisational management structure the risk to success can increase to frightening levels. In an outsource-heavy environment, companies need to put more controls and systems in place to compensate for the fact that the supply chain capabilities no longer reside onsite. In an outsourced supply chain environment the need for information, controls and excellence from the information worker becomes a high priority.

Complex product lifecycles: Many companies are under pressure to develop innovative products and bring them to market more rapidly while minimising cannibalisation of existing products, which are still in high demand. In order to meet the needs of both customers and consumers, companies need more efficient product lifecycle management processes. This includes heavy emphasis on managing new product introduction, product discontinuation, design for manufacturability and leveraging across their entire product and infrastructure characteristics.

As the economy becomes more global, compliance to packaging requirements and regulations have become critical to success. Without adherence to local packaging regulations a product may violate local requirements, preventing it from being distributed and sold in that market.

Product lifecycle management (PLM) technology processes can help ensure that products being produced and targeted for specific markets are well-managed and are compliant. PLM tools and processes have helped consumer goods companies with their efforts to try to continually drive demand through packaging innovation and design. Implementation of an optimal PLM process and technology can allow a consumer goods company to effectively produce and distribute products that are only targeted for regional promotions or consumer preferences.

Strong relationship between supply chain and customers: As supply chains continue to develop and mature there has been a move towards more intense relationship between customers and suppliers. The level of relationship goes beyond linking information systems to fully integrating business processes and organisation structures across companies that comprise the full value chain. The ultimate goal of relationship is to increase visibility throughout the value chain in an effort to make better management decisions and to ultimately decrease value chain costs. With the right tools, processes and organisational structure in place collaboration provides key people throughout the value chain with the information needed to make business-critical decisions with the best available information.

Relationship is seen in the increased focus around RFID. Value chain leaders are looking at functional areas to better integrate the supply chains of their partners with themselves and RFID can serve as a means to quickly and efficiently ensure that critical product information is communicated as products flow thru the value chain and ultimately to the consumer.

Companies that expand the usage of sales and operations planning have greater visibility across their owner enterprise and respective value chain, gain the agility necessary to improve the PLM process, improve promotional planning, minimise unnecessary build-ups of inventory, increase revenue predictability and execute customer service expectations.

The role of technology in supply chain management: As supply chain networks have become more complex the need for greater and improved supply chain technology solutions has become critical. Enterprise resource planning (ERP) and best-of-breed supply chain management (SCM) solution providers have made significant investments in developing solutions to address the needs of manufacturing and distribution companies in areas in last 25 years, such as:

These technologies have enabled the supply chain information worker to innovate, drive cost reductions, improve service and meet customer expectations better than ever. In order to have sustainable improvement in supply chain performance a business must have the right balance of investments in organisation, processes and technology. Lack of investment and focus in any one of these areas will reduce a company’s ability to achieve fundamental, sustainable improvement.

Developing, manufacturing and selling a product can challenge the best organisations in the best of times. As a company’s business driver’s change, business processes, SCM technology investment and the overall approach to supply chain management must change and keep pace. An inefficient and poorly functioning supply chain can negatively impact every aspect of an organisation, jeopardising the long-term performance and success of a business.

Companies that re-evaluate their business and how the current supply chain structure supports the business’ from a strategy, process, technology and organisational perspective’ must focus on keeping their supply chain aligned with the overall business strategy. Resulting, the high productivity and efficiency of last mile delivery with competitive logistics cost.

What is primary and secondary transportation?
The primary transportation means materials or goods transport from manufacturing unit/plant to direct retailers, customers, end users and secondary transportation means transport of materials of goods from warehouses, port, market organiser, distributors and C&F agents to the direct retailers, customers and end users.

Can you compare rail v/s road transport in terms of cost, time and impact on environment?
Railways and roadways are considered the most crucial modes of transportation. The rails being the major medium initially, road transportation has dominated the industry over the past few years.

The major highlights of comparison of rail v/s road transport as given below:

To read full interview, log on to: www.IndianCementReview.com