A Study report on Logistics cost at

My Home Industries Limited (Maha Cements), Nalagonda / Vizag

Prepared by : K Venkat
Head Business Solutions Pon Pure Logistics P Ltd 7th July 2012

Executive Summary Companies now turning their attention towards the supply chain operations especially on outbound logistics and realizes that lot of money that can be saved. The companies often end with paying high freight cost for the shipments transported from factories to dealers. Implementing a successful logistics program requires a better process with proven capabilities to consolidate/optimize shipments. It is important for the manufacturer to look internally and align the goals of the department and the goals of the operations of the business. Right time My Home Industries (MHIL)

started looking their process and cost of logistics operation. Cement, being a bulk commodity, is a freight intensive industry and transporting it over long distances can prove to be uneconomical. This has resulted in cement being largely a regional play with the industry divided into five main regions viz. north, south, west, east and the central region. With capacity addition taking place at a faster rate as compared to demand, prices have remained southbound, especially in the last one year. As Transportation is a costly affair, the selling and distribution cost account for more than 20% of sales revenue. Top companies spent huge money to carry cement to the customers. About 3% of the revenue is spent on inward logistic s, while outward logistics account for 15%, which needs to be really looked in, as the logistics seems to very high. With the Industry showing a downward trend in profit margins, better logistics management proves beneficial to many of the cement manufacturers. Hence, we were given opportunity to explore various modes of logistics 2
20% 15% 10% 5% 0% Inbound Outbound 3% 15%

that can provide a cost effective means of transportation. Our Scope of Study includes Best practices, Operational efficiency, Current facility The team consist of 4 members had taken the effort of understanding the current process and could find solution to the best of our experience, listed down with our various observations, recommendations and Industry standards. Focus on Logistics Go Ahead: Every industry has its own efficiency levels and are trying to address in different ways. In cement per se, volumes have gone up and in spite of all the limitation, the thrust is to move towards better services with better pricing. Before we start the process of Logistics analysisIndian Cement Industry a Glance.! Indian Cement Industry The history of the cement industry in India dates back to the 1889 when a Kolkatabased company started manufacturing cement from Argillaceous. But the industry started getting the organized shape in the early 1900s. In 1914, India Cement Company Ltd was established in Porbandar with a capacity of 10,000 tons and production of 1000 installed. The World War I gave the first initial thrust to the cement industry in India and the industry started growing at a fast rate in terms of production, manufacturing units, and installed capacity. This stage was referred to as the Nascent Stage of Indian Cement Company. In 1927, Concrete Association of India was set up to create public awareness on the utility of cement as well as to propagate cement consumption. The cement industry in India saw the price and distribution control system in the year 1956, established to ensure fair price model for consumers as well as manufacturers. Later in 1977, government authorized new manufacturing units (as well as existing 3 costing and analysis on transportation

units going for capacity enhancement) to put a higher price tag for their products. A couple of years later, government introduced a three-tier pricing system with different pricing on cement produced in high, medium and low cost plants. The cement industry is one of the main beneficiaries of the infrastructure boom. With robust demand and adequate supply, the industry has bright future. The Indian Cement Industry with total capacity of 300 million tones is the second largest after China. Cement industry is dominated by 20 - 25 companies who account for over 70% of the market. Individually no company accounts for over 12% of the market. The major players have been quiet successful in narrowing the gap between demand and supply. Private housing sector is the major consumer of cement (53%) followed by the government infrastructure sector. Similarly northern and southern region consume around 20%-30% cement while the central and western region are consuming only 18%-16%. The cement manufacturing industry, being one of the core industries in India, is growing steadily due to the growth in the infrastructure operations such as Surface Connectivity, Flyovers, IT parks, Special Economic Zones, Residential and Commercial complexes and Malls. Domestic demand for cement has been increasing at a fast pace in India.
Defense, 4% Roads, 5 % Infrastuct ure, 15%

Cement

consumption

in

India

is

forecasted to grow by over 25% by 201112 from 2010-11. This upward swing in the demand for
Housing, 53%

cement across the country has generated more volume of movement of cement across the various locations where more logistic service providers have stepped in to take on the business.

Irrigation , 23%

Major Clusters of Cement industry in India are:

Satna (Madhya Pradesh), Chandrapur (Maharashtra), Gulbarga (Karnataka), Yerranguntla (Andhra Pradesh), Nalgonda (Andhra Pradesh), Bilaspur (Chattisgarh), Chandoria (Rajasthan). Technology Up-gradation Cement industry in India is currently going through a technological change as a lot of upgradation and assimilation is taking place. Currently, almost 93% of the total capacity is based entirely on the modern dry process, which is considered as more environment-friendly. Only the rest 7% uses old wet and semi-dry process technology. There is also a huge scope of waste heat recovery in the cement plants, which lead to reduction in the emission level and hence improves the environment. Utilisation Vs Price Cement capacity utilisation has always had a high correlation with price. Whenever, the capacity utilisation dropped, cement prices trended up. In FY 10 prices fell by over 10% and the capacity utilisation rate went south. In FY 10, the cement industry faced subdued demand growth coupled with a surplus scenario, leading to a fall in the overall capacity utilisation rate averaging 79%. This led to fall in cement prices in surplus regions 5

and the industry reported losses. In FY 11, the industry resorted to production discipline and was able to pass on the rise in costs to consumers with rise in cement prices by 15% in FY 12 coupled with lower capacity utilization. In FY 12 capacity utilisation is estimated to have bottomed at 73% and a turnaround is expected in the coming FY 13.

Top Companies - Average cost break up of top cement companies ACC Limited, Ambuja Cements Limited, UltraTech Cement Limited, India Cement Limited, Shree Cement Limited, Rain Cement Limited, Prism Cement Limited, Madras Cement Limited, Birla Cement Limited, JK Cement Limited Freight and Distribution is accounting to almost 21% on total cost spent by these companies. My Home Industries Limited is one among the few of the manufacturers of industrial grade cement in Andhra Pradesh, which has the similar costing pattern. My Home Industries Limited (MHIL) My Home Industries, part of My Home Group, is one of the leading cement manufacturers in South India. With three plants in Mellacheruvu (Nallagonda Dist), one newly commissioned unit at Yalamanchili (Vizag Dist) My Home Industries has a total installed capacity of 4.7 million tons per annum. With this, My Home Industries has become the largest cement company in Andhra Pradesh in terms of installed capacity. The Brands MAHA CEMENT and MAHA SHAKTHI have built a formidable reputation for quality. My Home Industries also has a 15 MW captive power plant at Mellacheruvu unit. My Home Industries has a 60 MW plant at Mellacheruvu which is being
Power & Fuel, 29% HR, 5% Frieght / Distribution, 21% Other Exp, 21% Depreciation , 7% Raw Material, 17 %

implemented by My Home Power. These units are set up with state-of-the art technology.

MHIL has a joint venture with CRH Plc Ireland, the international leader in building materials operating in 33 countries across 3500 locations. The growth and success of CRH is founded on its exceptional commitment and capabilities. Sharing the common vision of excellence, MHIL and CRH as one entity, is fast emerging as a leading force in the Indian cement industry. In recognition of its quality drive, MHIL has been awarded the ISO 9001-2000 certification.

Observation at MHIL Good Practices / Facilities

Process / Facilities MHIL is very conscious of the technology

used. In cement production, raw materials preparation involves primary and secondary crushing of the quarried material, drying the material (for use in the dry process) or undertaking a further raw grinding through either wet or dry processes, and blending the materials. Clinker production is the most energy-intensive step, accounting for about 80% of the energy used in cement Production. Produced by burning a mixture of materials, mainly limestone, silicon oxides, aluminum, and iron oxides, clinker is made by one of two production processes: wet or dry; these terms refer to the grinding processes although other configurations and mixed forms (semi-wet, semi-dry) exist for both types. In the dry process, the raw materials are ground, mixed, and fed into the kiln in their dry state. In the wet process, the crushed and proportioned materials are ground with water, mixed, and fed into the kiln in the form of slurry.

Grinding Unit at Vizag is the recent addition to

My Home Industries. Its a Greenfield plant located at Mulkapalli Village yelamanchili Mandal, Vizag District. Endowed with advanced technology from Loesche, Germany, this plant produces 15 lakh tones per annum. Vizag plant is strategically planned to serve the eastern markets like Odissa, West Bengal and Bihar. Clinker is procured from Mother Plant there at Mellacheruvu. Slag is sourced from Vizag Steel Plant and the Gypsum from Coromandal Fertilizer plant. Clinker,Slag and Gypsum grounded in Vertical Roller Mill supplied by Loesche, Germany. Modern Quality Control laboratory with X-Ray analyzer assures bag of Maha Quality in each and every manufactured. Integrated cement

management System is being implemented to ensure superior quality, safety and environment friendly production. Packing of cements is fully automated in MHIL. As the process of cement production is completed, the packing is mechanized to the tune of daily requirement. The special equipments / machineries are installed to meet the day to day packing requirements. LOADING / UNLOADING Finished goods (Industrial Grade Cement) is packed in HDPE bags and loaded mechanically at the factory. Labour for loading and unloading is very much limited and the activity is fully automated.

 In

order to measure cement bags on conveyors, proto control

provide these Cement Bag Counter Unit. The counter unit comprises sensor location, bag display system (Counter) and setting terminal selection of sensor. All these parts helps the unit to function properly and more effectively. Hence the accuracy of production and loaded quantities are maintained accurately

Products of My Home Industries Limited - Cement that are produced in MHIL are:

Ordinary Portland cement (OPC): OPC, popularly known as grey cement, has 95 per cent clinker and 5 per cent gypsum and other materials. It accounts for 70 per cent of the total consumption. 9

 Portland Pozzolana Cement (PPC): PPC has 80 per cent clinker, 15 per cent pozzolana and 5 per cent gypsum and accounts for 18 per cent of the total cement consumption. It is manufactured because it uses fly ash/burnt clay/coal waste as the main ingredient. White Cement: White cement is basically OPC - clinker using fuel oil (instead of coal) with iron oxide content below 0.4 per cent to ensure whiteness. A special cooling technique is used in its production. It is used to enhance aesthetic value in tiles and flooring. White cement is much more expensive than grey cement. Order Processing Systems Order Processing Systems involved the flow of information about the orders from generation to order fulfilment. MHIL is using SAP for processing their supply chain and dispatch requirements. The datas are maintained on-line by the respective officials. Orders once received, is processed processed quickly and accurately through SAP. MHIL had linked all their offices through a Wide Area Network (WAN). Electronic Data Exchange (EDE) facilitated timely and accurate processing of orders. Assuring high customer service level is critical for Building Materials companies to improve customer retention and loyalty. Sales can easily, quickly and accurately, determine pricing and costing, check production resources, as well as track and manage quotations, contracts, deliveries & invoices reducing sales cycle time & ultimately increasing revenue. SAP provides a comprehensive sales order management solution to efficiently process.

Logistics & Supply Chain

10

The Team The Despatch Team MCW has 21 members at MCW and 7 members at Yelamnchilli plant. Apart from this the labours are outsourced, managed with optimum level. Distribution coverage from MCW plant:

From Nalgonda : Khamman , Krishna, Guntur, West Godavari, Prakasam, Bhagalpur, Gajapathi, Srikakulam, Nellore, Vizianagaram, Rayauda, Burdwan, Gaya, Patna, East Godavari, Begusari, Chennai, Siwan, Bastar, Dhenkanal, Palamu, West Midapore, Koraput, Murshidabad, Kolkatta, Howrah Bhadrak, East Singbhum, Puri, Bolangir, Jajpur, Sambalpur, Balasore, vishakapatnam, Kalahandi, Ganjam, Cuttack, Khurada

From Yelamanchilli : Balasore , Bankura, Bastar, Begusarai, Bhadrak, Bhagalpur, Bhojpur, Bolangir Burdwan, Chennai, Cuttack, Darbhanga Dhenkanal, East Champaran, East Godavari, East Singbhum, Gajapathi, Ganjam, Gaya, Guntur, Howrah, Jagatsingahpur, Kalahandi, Hurada, Kolkatta. Joraput, Mayurbhani, Murshidabad, Muzaffarpur, Nalgonda, Nellore, Palamu, Patna, Prakasam, Puri, Ranchi, Rayagada, Sambalpure, siwan, Srikakulam, Vishalapatnam, Vizianagarm. West Godavari, West Midnapore
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Mode of Transport Road (Trucks & Bulkers) Rail Sea (Needs to be explored)

When we are entering the downside of the cycle, with profit margin coming down to 20% to 25% from 35% to 40%, better logistics management proved beneficial to many of the cement manufactures. We understand here at MHIL is close to the industry norms of nearly about 3% to 5% whereas the outbound is close to 15%. Hence the need of better logistic planning is become very much essential. As the final distributor network clusters located far away from the major consumption centre, means the cement has to be transported over very long distances. The right mix of transportation planning is required to have better costing Current Trend of Despatches from Yelamanchili State Andhra Pradesh Bihar Chhattisgarh Jharkhand Tamil Nadu WB Orissa Mode Contribution Road Road Road Road Road Road Train 19% 9% 1% 6% 4% 11% 50% Out of Total despatches made from this plan, approx. 50% of dispatch contribution accounts to Orissa, which is primarily catered through railways As MHIL has arrangement with Indian Railways, through them they get daily rakes for the Orissa destinations, which is contributing 40% to 50% of the sales.

Till Last month Yelamanchili plant has achieved the highest dispatch of 151000 Tons per month as against their target of 200000 Tons, which the continuous effort is being put.

Sea Transport Today, 70% of the cement movement worldwide is by sea compared to just 1% to 2% in India. However the scenario is changing with most of the big players, having set up their bulk terminals. As far as cement is concerned, the costs of handling and secondary 12

movement are very high. Although transportation by sea is the cheapest option, unless there is right connectivity from the port to the consuming centre the gains are minimum. Plants located in Coastal belts find it much cheaper to transport cement by the sea route in order to cater the coastal markets such as Mumbai and the states of Gujarat and Tamil Nadu. Sea route is the most economical mean of transport, but in India sea route is viable only on the west coast. Sea route economical but not available across. Rail Routes Logistics in the cement sector affect freight costs to a large extent. The basic raw material and the final product freight costs affects to a large extent. Checking logistics costs is an ongoing process for the cement companies, same as the case to MHIL. Companies are trying to reduce the costs by around 5% - 7% by optimizing the distance of transport. We understand about 45% to 50% of the cement produced in MHIL is being transported by the railways. Normally Road can be preferred for shorter distances. Currently Industry and also MHIL prefer using railway routes than roads, shrinking lead distance (distance between factory and Market) is one of the cost reduction measures being maintained. On an average for every 50Kg bag transported, our logistics cost comes to around Rs.18 to Rs.25 by Road and Rs.12 to Rs.15 by the railway depends on the distance.

Features of Rail movement: Haul about 45% to 50% of cement. Railways has very good system, which gives real time visibility. On the technology front, the railways has done a great job, 13

It continuous to be a socialist set-up and at the pace at which the economy is growing the railways has limited resources. Railway have increased number of trains but the tracks are same. It is not the railway that is slow, it is a general problem in the country. The time taken to conceive a project and to execute that project is huge. Railways at MHIL: As our final distributor network clusters located far away from the major consumption centre, means the cement has to be transported over very long distances, both the plants have railway sidings to cater majority of their requirement. Almost 50% of their distributors are taken care through the rail movement. The Indian railways plays a major role in transporting the cements nearer to the consumption centre.
Andhra Pradesh 19% Bihar 9% Chhattisgarh 1% Jharkhand 6% Tamil Nadu 4%

Rake Operations Indian Railway allots a rake as per the requirement of MHIL, for which the indent is being generated by the Factory dispatch head and the same is catered by Indian Railways with 24 Hours of the receipt of Indent. MHIL does normally 30 rakes per month at both the plants

Orissa 50%

WB 11%

The major destinations from MCW is as follows: To Banglaore : Chennai : Coimbatre : Erode : Kerala : Katpadi / Vellore 5 Rakes 5 Rakes 1 Rake 1 Rake 1 Rake 1 Rake

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Distribution pattern of MCW States Andra Pradesh Karnataka Maharashtra Pondy Tamil Nadu Contribution 69% 10% 1% 1% 18%
Pondy 1% Maharashtra 1% Tamil Nadu 19% Karnataka 10% Andra Pradesh 69%

In this operation, the railways have fixed routes for which the wagons are allotted as per the requirement. Each Rake will have minimum 42 wagons of 2 sizes. (BCN & BCNA) BCN 1258 Bags BCN A 1318 Bags

Each Wagon will carry a weight of 62 65 Tons approx. Railways had also agreed for two point delivery, the dispatch will plan the order and request for rakes accordingly. Despatch team is planning minimum 1 rake per day with a dedicated team to monitor. In the older system, the key was to have a godown and evacuation quantity use to be very small. Today one rake carry 2800 MTs as against 1500 MTs earlier. Now the size has almost doubled. Unfortunately evacuation resources have not kept pace with the requirement. Most goods sheds are under control of the union, the fleet size has not expanded as per the growth of the cement business. Labour is controlled by the union. Labour availability has not increased as per the incremental volumes Recommendations Mechanisation can alone reduce cost by a minimum of 10%. The company could currently evacuate 3000 tonnes by manual route from goods shed, just because the systems are not mechanized. Going ahead labour in India will become a scare commodity, so companies or service providers should be prepared for such eventuality 15

in coming years. The industry will have to join hands and to take up a pilot project. It has to be collaborative effort, so that this will help in fast turn around. Also at the plants, the system of tracking the details of the wagon entry is done manually, they incur on an average of 1 to 3 hours additional and in turn the request is made to Railways for waiving the halting charges Even they get only 50% on the waiver request. Hence the system of monitoring the entry & exit is very much essential. Road Transport The Fleets at Maha cements are on dedicated model basis. We have here company Owned Vehicle as well as market vendor attached dedicated to this operation. As the raw materials are brought to factory within 50 to 100 KMs radius, the return trip of the fleets is only empty run. Fleets are utilized to carry finished products factory to its dealers all across parts of Orissa, AP, Bihar, Tamilnadu. Roads are cheaper upto a lead of 300 Km, over which it is railways. Logistics cost is going to come down provide one is on the right track. If we chases the cost in isolation by just working on cost reduction, the cost cannot be reduced in the inflationary world. The process of cost negotiations of olden days are over now. Under negotiation, we arrive only at the lowest quoted price and was not content assumingly to have reduced the cost. Here we arrive only the best negotiated price not at a best cost. Today the concept of negotiations is no more prevalent. If one wants to work the truck freight to a particular destination, the right cost should take into account all the statuory duties, all the toll taxes, fuel cost and all other allied cost, cost of vehicles, turnaround efficiency, everything. These known efficiency parameters should be arrived at the right price. Here cost can be reduced only by increasing the efficiency. The bottleneck in road transport is a concern now on roads. There has been a progressive in the toll rates and the number of points. On a stretch on 200 KM there is 5 to 6 toll points, which hinders speed. This has resulted in increased cost and time. There is an urgent need for high tech toll booth.

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The study is to purpose an operating cycle where Finished goods are moved from factory to dealers. These drop-offs are to be regular deliveries where each truck will carry and unload requirements of 1 (minimum) to 2 (maximum) destinations during every Forward trip. The vehicles run empty during the return trip to the factory. On an average the MHIL operates 75 100 trucks at Yelamanchilli and 125 150 Trucks at Melacheruvu per day. Turn around Time : As we do not have the current system of Monitoring the turn around time of each vehicles, the datas are to be established. But we understand during our visit to the plant the vehicles are loaded within 45 minutes at the plant, as it is automated loading system To improve the turn-around time of the vehicle, the robust system of monitoring and review mechanism to be established. The detailed workings are also suggested in the coming sessions. Freieght : At present MHIL operates its Supply-chain through various Transport operators. At MCW, We have 21 operators and We have 9 Operators. This ranges from Small time vendors to Major players, ranges from 7 Vehicles to 70 Vehicle owners. Apart from this, MHIL has got their own fleet strength of more than 100 to support their operations. They Operate 10 Wheeler, 12 Wheeler, Tankers 10 Wheeler takes 17.5 MTs / Trip 12 Wheeler takes 22.5 MTs / Trip Tankers takes 25 MTs / Trip

Currently the operators are wedded with agreement and they are given the routes with rates fixed for the destinations.

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Contribution of Movements: Out of Major Locations served from both the plants almost 50% of the volumes are serviced to the locations less than 300 KMs. 20% are between 300KMs and 500 KMs 15% is mainly contributing to Chennai and around in the greater than 500 KMs range. Remaining 15% is spread across various destination which is again falling in the range of 500KMs to 800 KMs. The Bench Marking freight cost is given below for both 10 Wheeler and 12 Wheeler. It is always better 12 Wheeler to major locations, so that we will have cost benefit as our volumes are high. The Trucking Operation (Suggested Operations): Truck may be either owned by MHIL / Dedicated from Vendors Two drivers will man each truck to manage a average run of 700 KMs per day. Truck will be on Road for 20 Hours.

Process Controls
MHIL has to frame an operations procedure for managing the own fleet/dedicated fleets. Some of the key areas addressed in the Process document are listed below. Documents maintained / updated

Process
Forward Trip Accident / Breakdown Maintenance / Repairs of Company owned vehicles 1. En-route Maintenance 2. Periodical Maintenance 3. Break Down Repair Maintenance schedule register, Vehicle History book, Tyre card Trip sheets, Daily pre-alerts, Goods Consignment note, Transport manifest, Vehicle log book, Vehicle check list, Vehicle History book Truck detention report

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4. Tyre Management 5. Purchase of new Tyres. 6. Remolding of Tyres Statutory Requirements Process Monitoring Process Measures 1. Vehicle wise Profitability 2. Vehicle Halting 3. Accident Rate 4. KM run per month 5 eye reports Vehicle check list, Vehicle Log book, Vehicle History book, Statutory check list 5 eye reports

Components of Freight Cost Own Vehicle Operation

Fixed Cost 18%

Fuel 30%

Toll 11%

Enroute Exoenses 17% Salary 9%

Tyre 7%

Bhatta 4%

R&M 4%

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Mark Pricing For 10 Wheelers: (Vehicles are less than 4 years)

Distance Assumptions Tonnage Avg Kms per trip Fuel Average KMs / Ltr Vehicle on Road Trips Per Month Average Kms / Month Fuel Requirement / Month Current Fuel Price Fixed Expenses / Annum (Statutory exp- Including EMI) Operating Cost Fuel cost Tyre cost Repairs and maintenance costs Driver salary @ 15000 / 2 drivers Driver Bhatta @ 250 per head Other Expenses Communication cost Toll Expenses En route miscellaneous expenses Total Operating Cost / Month Fixed Cost / Month Total Cost / Month Cost / Ton for Return Empty Add : Vendor Margin - 10% 96,800 23,222 12,100 30,000 12,500 25,000 1,500 36,000 27,000 264,122 58,297 322,419 1,024 102.36 96,800 23,222 12,100 30,000 12,500 25,000 1,500 33,000 16,500 250,622 58,297 308,919 1,605 160.48 140,800 33,778 17,600 30,000 12,500 25,000 1,500 40,000 25,000 326,178 58,297 384,475 2,197 219.70 Upto 300 Kms One way Empty 17.5 600 5 22 18 11,000 2,200 44 699,567 300 ~ 500 Kms One way Empty 17.5 1,000 5 22 11 11,000 2,200 44 699,567 > 500 Kms* One way Empty 17.5 1,600 5 22 10 16,000 3,200 44 699,567

Cost / Ton

1,125.91

1,765.25

2,416.70

*The cost for greater than 500 Kms is considered maximum for 800 Kms run.

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Bench Mark Pricing For 12 Wheelers: (Vehicles are less than 4 Years)
Distance Assumptions Tonnage Avg Kms per trip Fuel Average KMs / Ltr Vehicle on Road Trips Per Month Average Kms / Month Fuel Requirement / Month Fixed Expenses / Annum (Statutory exp- Including EMI) Operating Cost Fuel cost Tyre cost Repairs and maintenance costs Driver salary @ 15000 / 2 drivers Driver Bhatta @ 250 per head Other Expenses Communication cost Toll Expenses Enroute miscellaneous expenses Total Operating Cost / Month Fixed Cost / Month Total Cost / Month Cost / Ton for Return Empty Add : Vendor Margin - 10% 121,000 23,222 12,100 30,000 12,500 25,000 1,500 36,000 27,000 288,322 65,297 353,619 893 89.30 121,000 23,222 12,100 30,000 12,500 25,000 1,500 33,000 16,500 274,822 65,297 340,119 1,405 140.55 176,000 33,778 17,600 30,000 12,500 25,000 1,500 40,000 25,000 361,378 65,297 426,675 1,939 193.94 Upto 300 Kms One way Empty 22.0 600 4 22 18 11,000 2,750 783,567 300 ~ 500 Kms One way Empty 22.0 1,000 4 22 11 11,000 2,750 783,567 > 500 Kms* One way Empty 22.0 1,600 4 22 10 16,000 4,000 783,567

Cost / Ton

982.28

1,546.00

2,133.38

*The cost for greater than 500 Kms is considered maximum for 800 Kms run.

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Bench Mark Pricing For 10 Wheelers: (Vehicles that are beyond 4 years)
Distance Assumptions Tonnage Avg Kms per trip Fuel Average KMs / Ltr Vehicle on Road Trips Per Month Average Kms / Month Fuel Requirement / Month Current Fuel Price Fixed Expenses / Annum (Statutory exp- Including EMI) Operating Cost Fuel cost Tyre cost Repairs and maintenance costs Driver salary @ 15000 / 2 drivers Driver Bhatta @ 250 per head Other Expenses Communication cost Toll Expenses Enroute miscellaneous expenses Vendor charges Total Operating Cost / Month Fixed Cost / Month Total Cost / Month 96,800 23,222 13,750 30,000 12,500 25,000 1,500 36,000 27,000 30,000 295,772 10,297 306,069 96,800 23,222 13,750 30,000 12,500 25,000 1,500 33,000 16,500 30,000 282,272 10,297 292,569 140,800 33,778 20,000 30,000 12,500 25,000 1,500 40,000 25,000 30,000 358,578 10,297 368,875 Upto 300 Kms One way Empty 17.5 600 5 22 18 11,000 2,200 44 123,567 300 ~ 500 Kms One way Empty 17.5 1,000 5 22 11 11,000 2,200 44 123,567 > 500 Kms One way Empty 17.5 1,600 5 22 10 16,000 3,200 44 123,567

Cost / Ton

972

1520

2108

*The cost for greater than 500 Kms is considered maximum for 800 Kms run.

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Bench Mark Pricing For 12 Wheelers: (Vehicles that are beyond 4 years)
Distance Assumptions Tonnage Avg Kms per trip Fuel Average KMs / Ltr Vehicle on Road Trips Per Month Average Kms / Month Fuel Requirement / Month Fixed Expenses / Annum (Statutory exp- Including EMI) Operating Cost Fuel cost Tyre cost Repairs and maintenance costs Driver salary @ 15000 / 2 drivers Driver Bhatta @ 250 per head Other Expenses Communication cost Toll Expenses Enroute miscellaneous expenses Vendor Margin per month Total Operating Cost / Month Fixed Cost / Month Total Cost / Month 121,000 23,222 13,750 30,000 12,500 25,000 1,500 36,000 27,000 40000 329,972 10,297 340,269 121,000 23,222 13,750 30,000 12,500 25,000 1,500 33,000 16,500 40000 316,472 10,297 326,769 176,000 33,778 20,000 30,000 12,500 25,000 1,500 40,000 25,000 40000 403,778 10,297 414,075 Upto 300 Kms One way Empty 22.0 600 4 22 18 11,000 2,750 123,567 300 ~ 500 Kms One way Empty 22.0 1,000 4 22 11 11,000 2,750 123,567 > 500 Kms One way Empty 22.0 1,600 4 22 10 16,000 4,000 123,567

Cost / Ton

860

1,350.

1,882

*The cost for greater than 500 Kms is considered maximum for 800 Kms run.

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Recommended Loading Pattern:

Locations 500 - 800 Kms 300 - 500 Kms < 300 Kms Priority / Preference 1st 2nd 3rd

The above loading pattern may be followed for increasing the effective turn around time and increase in productivity.

Recommended Transit Time: Transit Time

800 Kms 500 - 700 Kms 300 - 500 Kms 100 - 300 Kms < 100 Kms

Hours / Day
20.00 20.00

Kms / Day
700 700 500 300

Transit Time
1 day 20 Hours 15 Hours 9 Hours 3 Hours

Recommendations: KEY COMMERCIAL TERMS The Contracts with the vendors may have to be looked into the various aspects. The following are the recommendations may be looked into while contracting the vendor 1. Contract Period : The contract will be valid for a longer period (may be 4 to 5 years) with an exit clause requiring 3 months notice. 2. Escalation clauses : Fuel costs comprise a major portion of Freight costs. The contract is to contain a fuel escalation clause whereby any increase in Diesel prices will automatically increase the Variable Billing rate. We can use the below formula to quantify the increase in commercials owing to increase in fuel cost. New Freight rate = Old Freight rate + [Old Freight rate x 40% x (Old Diesel Price New Diesel Price)] New Diesel Price

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Other costs are to be revised on an annual basis. MHIL can propose the rate of increase on the basis of actual costs incurred every year and will be mutually agreed upon. 3. Operational KPI : We recommend MHIL should include KPIs for the vendors in the agreement itself and the respective incentive system may be announced based on the exceeding performance. The following parameters may have to be incorporated in the KPI measures. KPI for Transport Vendors Transit Reliability Transit Accuracy Maximum No of trips per month Distance Covered per month POD submission Vendor Discipline 4. MHIL requires Proof of Delivery to be accompanied with every invoice of the vendor. This obtained at unloading point by Vendors by means of an acknowledgement on the Goods Consignment Note. MHIL has to ensure the POD is collected before the next trip is engaged.

5. Also MHIL will have to meet the vendors once in a month to review their performance and to understand the issues to have better communication and better improving the service.

RISK ASSESSMENT To mitigate various risk factors, which may be faced during operations, separate procedures have been formulated to ensure Safety of vehicle and cargo Maximization of Productivity Proper and Timely Maintenance and upkeep of vehicles Fulfillment of Statutory obligations 25

Besides implementation of above Procedures, MHIL should insist vendors to install a GPS device on each vehicle, thereby giving us the scope to extend Customer service area by providing real-time facilities like Track individual vehicle position. MIS / Cargo reports En-route Communication with Drivers.

Computerised Environment : Logistics cost is going to come down a. Efficiency b. Technology c. Mechanisation d. But not the least, person should know the right cost of operation. There has to be organized movement of transport. Every truck coming into the factory should be logged in system, When they go out and where it is assigned to go should also be tracked. So that need and useage will be recorded. In-between we have brokers/drivers are in this field. They will make money by non-visibility of information. That cost will be unnecessarily borne by the company. Make every information of transportation is visible. Let us have full proof TMS system in place.

General Observations: Enthusiastic & Dedicated Work force. House keeping levels are good. Staff welfare & People oriented management

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Over All Recommendations: Route Planning & Scheduling to be strengthend. Exploring the possibilities of Operating Sea route, so that cost will be much cheaper. The review mechanism to be strengthened, so that more value additions will take place. The pricing structure may be re-looked in such a way the vehicles are available for lesser price. Needs to have robust SOP, Visual displays on order management. Morning meeting on dispatch planning is required to improve further. Vehicle Utilisation and Vendor service level monitoring is now need to be implemented. Needs to put continuous efforts on logistics activities across plants to improve efficiency and productivity better. Computerised tracking of vehicle movement -

Conclusion

We would like to thank the entire team for this opportunity provided to us, to extent our support in improving the operations as well as service parameters. We look forward your long term association.

Logistics cost reduction cannot be the sole objective and seen in isolation by the company. The most important is the service.! At the end of the day, if one is unable to serve the customer, he will never be in the industry

Thank You!

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