The era of the digital supply chain transformation
Technology is facilitating the evolution of the modern supply chain despite the slow rate of adoption in India and is set to transform the logistics landscape in the country. Lionel Alva...
Supply chain has been constantly evolving and has become increasingly sophisticated with several finished products that require a large number of ingredients with a broader and more widespread base of suppliers. Undoubtedly, technology has played a part in the complexity of the supply chain and has performed functions such as electronic invoicing, computerised shipping and tracking and semi or full automation that are core components of many supply chains today were advanced by companies like FedEx, UPS and DHL. Technology facilitates better inventory management and fosters supply chain visibility with the use of information. However, India’s logistics sector has been largely fragmented and the adoption of technology has been slow. Consequently this has led to supply chain managers realising that technology can help them acquire an edge in a competitive market and stay ahead of the pack. Thus organisations have to deal with technological adoption in the face of increasing global integration and competition. Today’s technology has extensive capability when it comes to keeping a company’s production on track, anticipating and repairing mistakes, and making modifications that guarantee a top-quality product. Every link in the supply chain can be monitored simultaneously, and automated notification systems are especially valuable for sending a single message to many players through a variety of media channels. A fragmented industry Technology is an enabling tool for the industry. The challenge for the industry is to use the right kind of technology and implement it in a precise fashion that would help augment an organisation’s capabilities. This is especially significant in a scenario where India spends 14 percent of its GDP on logistics compared to that of developed countries where the percentage is around eight to nine percent and the industry on the whole is very fragmented. The reasons for this huge spending can be attributed to lack of efficient infrastructure facilities, lack of implementation of technology in logistics and anachronistic systems such as delay checking points on the highways which invariably increases transportation costs. “The technological implementation depends on scale. The logistics industry is too fragmented where there are small to medium to large sized companies. In such a fragmented market, the IT implementation becomes a challenge,” observes Vivek Arya, Managing Director, Rhenus Logistics India. The key function played by technology in the logistics sector, albeit in part, has been to streamline operations, improve various process efficiencies, and provide better service levels with lower costs. It has helped companies to plan and integrate with various stakeholders, providing increased visibility. “Secondly, IT solutions and implementation is an expensive proposition. The size of the company (small & medium) does not commensurate with the IT investments to be made. Unfortunately in India, there are not many IT companies which can offer cost effective logistics solutions,” adds Arya. There are also problems where customers are skeptical of integrating their IT systems with the service providers on account of security since there are multiple data points. Apart from these challenges there are various connectivity issues in tier 2 and tier 3 cities. However, several factors, such as the emergence of e-commerce and the foray of 3PLs have led organisations to re-think their approach towards supply chain management. Furthermore, the challenges of modern technology driven-competition, globalisation of manufacturing, short product cycles and an increasingly diverse and sophisticated consumer base has been a compelling cause for India’s logistics sector to look towards innovative practices that involve the use of technology. Rajiv Bhuta, Senior Director, Product Management Group, JDA Software observes, “Given the setting of India’s unorganised logistics sector with 3PL players fragmented across the entire spectrum of the landscape, and the still largely unconnected hinterlands — to quote Robert Frost— “we have miles to go” (with pun intended) in terms of the maturity of these processes, technology and solutions.” Technology adoption is driven by an underlying factor: the size and scale of operations. Based on turnover, margins and ownership (professionals vs. family-owned), the technology spend is perceived either as an investment or an expense. The latter is true in most cases and this blinkered perception in turn triggers a spate of decisions where simplistic and least expensive plug-and-play solutions are sought. “The logistics sector per se has come into the limelight only in recent times. From the better part of India’s growth that has been happening since the 90s, the logistics sector would be a low priority sector from the industry standpoint and even the government standpoint,” says Abhishek Chakraborty, Executive Director, DTDC Couriers & Cargo. Most organisations are more comfortable handling annual contracts vis-à-vis IT capital projects that take few years to deliver results. Owing to a lack of expertise in assessing, planning and executing such technology projects, it is more of a miss than a hit for companies to get this right. “The challenge that this industry has faced is that there have been many players from small to large and traditionally this industry has worked with projects that involved manual processes. Furthermore, the logistics industry in India is highly fragmented where there are many small players who lack the scale to invest in technologically sophisticated processes,” adds Chakraborty. For IT service providers, it is indeed a challenging market that is cluttered with players who have unique business and cultural scenarios catering to local/regional clientele. However, regionalised, fragmented, small time unorganised players with not enough bargaining power to advocate and lobby for a more regulated landscape has definitely stifled the pace of growth and hence IT adoption and related manpower was never seen as a necessity to be a player in the market. The negligible tech adoption that did happen trended on siloed approach for want of holistic approach to operations and its prioritisation. Such disconnects eventually accentuated the problem of systemic inefficiencies. “For a country like ours, a government stimulant programme such as the one offered for cold storage (subsidy funding of 40 percent of project cost); and the ones that we see in countries like UK to support their value chain causes would be a welcome boost,” says Bhuta. The other end of the spectrum in the Indian logistics landscape is all about faster time-to-market in the war for leadership amongst e-commerce players.
Digitisation is the future Today most organizations operate on hybrid supply chain models that combine paper-based and IT-supported processes. It is the advent of technologies such as Radio-frequency identification (RFID), GPS, and sensors that have enabled organisations to transform their existing hybrid (combination of paper-based and IT-supported processes) supply chain structures into more flexible, open, agile, and collaborative digital models. Unlike hybrid supply chain models, which have resulted in rigid organisational structures, inaccessible data, and fragmented relationships with partners, digital supply chains enable business process automation, organisational flexibility, and digital management of corporate assets. For on-demand delivery driven e-commerce players and VC/retailer fund-infused companies, startups and subsidiaries can make the use of mobile and cloud connectivity along with RFID, GPS, Internet of Things, sensor-based technologies and automated material handling (AGV, ASRS) and sophisticated delivery systems and arrangements (drones and uberisation of trucking) can completely transform their supply chain operations. In order to reap maximum benefits from digital supply chain models, it is important that companies internalise it as an integral part of the overall business model and organisational structure. Localized disconnected initiatives, and silo based operations pose a serious threat to competitiveness in an increasingly digital world “To name a few KRAs, we can get better at resource management (capacity use rate in terms of hours and volume, manpower), fleet management (lowering carbon footprint), exponentially increase warehouse throughput, share real-time shipment visibility, increase perfect orders and respective fill-rates (delivery in full, delivery on time, delivery in full on time),” observes Bhuta. To cite an example, a 2012 WERC study highlighted internal order cycle time as a major area of improvement in distribution centre operations. The best-in-class operators report an internal order cycle time of less than three hours while the majority of them take around 36 hours. Further analysis of work steps reveals that almost 60 percent improvement in activities such as order processing are brought about by digitising and enabling a systemic tracking mechanism. The rest of the improvement is brought about by using automated systems which too rely on digitised data. “An organisation needs to find the right technology that is a good fit for its needs. For unorganised players, this will help them look at better ways to efficiently run their business and thereby lead to consolidation and emergence of bigger players. They will be forced to tap a more skilled supply chain talent pool, vastly reduce use of paper and paperwork, reduce cost and drive more system data driven processes, better governance models and improved customer service,” says Nagarajan Govindarajan, Managing Director, Lateral emSoft. “We have organised truckers, we have a system where we can identify the driver, which brings in a lot of discipline into their system. We also have a system that also record fuel levels, we are also working towards bringing in other technologies to be a complete solutions provider. Logistics providers and small transporters must understand that the vehicle is an asset. It is not only the company. Look at it from an angle of logistics cost,” adds Govindarajan. Technology is rapidly changing the landscape of most consumer oriented businesses in a fundamental way. The digital supply chain is a natural evolution of a more globally integrated business model. A holistic approach to digital transformation of supply chain, starting with a digital strategy and a digital operating model will set the direction for integrated execution. The connectivity and visibility created with a digital network is the foundation for more dynamic supply chains. In today’s “new normal” of permanent market volatility, dynamic supply chains offer the adaptiveness needed to rapidly respond to the constant changes in the consumer and business landscape. The adoption of technology will not only enable organisations to realise the untapped potential of existing capabilities, but also to achieve higher performance and ultimately create greater value.
