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Building Warehousing Competitiveness India PDF
Building Warehousing Competitiveness India PDF
Building Warehousing Competitiveness India PDF
com/india
Building warehousing
competitiveness
July 2011
Contents
Overview of warehousing in India 4
Opportunities for warehousing in India 10
Key challenges for warehousing in India 14
Creating a competitive warehousing market in India 17
Skill and talent development 20
IT intervention 24
Government initiatives: Policies and measures 29
Investment opportunities in warehousing in India 32
The way forward 36
2 PwC
Foreword
The CII Institute of Logistics, in association with PricewaterhouseCoopers Pvt.
Ltd as knowledge partner, is proud to release this thought leadership publication
Building warehousing competitiveness.
The publication focuses on the evolution of the warehousing sector in India and
the opportunities that the Indian landscape offers for the growth of its players.
The sector’s many challenges are being addressed through various initiatives.
The economy flush with investments has also propelled this sector and created
immense opportunities. This has compelled warehousing players to opt for ways
to be competitive with sustainable growth. In this document, we also explain
how the adoption of appropriate technology will increase the competitiveness of
warehousing players by delivering substantial operating savings while also
improving the quality of services.
Rachna Nath
Executive Director, PwC
4 PwC
The Indian logistics market has evolved has also led to the development of transparency, relaxed tax structures to
from traditional transport companies to improved international trade activities. encourage participation of foreign and
a full-fledged logistics service provider, Increasing market sophistication, private players in the sector and
which offers various supply chain changing customer choices and global dedicated logistics parks and Free Trade
services such as transportation, competition are pressurising Warehousing Zones (FTWZ) are
warehousing and other value additions. manufacturers to provide better goods fostering the growth of the logistics
Traditionally, there existed only pure and services to customers at lower costs. market in India and also helping
transport or warehousing service In a way this has put the pressure on identify it as an independent sector by
providers of the in-house nature. The managing costs more efficiently. Various the government.
trend changed towards providing industries have taken up initiatives to In the complete logistics value chain,
customised services and started being cut down on direct material costs, warehousing forms a very important
outsourced to specialised players in the administrative costs and have tried link. Warehousing, which forms 20% of
industry. Thus emerged the concept of streamlining internal production the total logistics market, was
third-party logistics (3PL), where processes. Yet it has been observed traditionally used as godowns to store
companies provide outsourced or that the maximum cost savings can be goods from the time of production till
third-party logistics services to achieved by managing the supply the time of consumption. Over time and
companies for part, or sometimes all of chain efficiently. with the changing role of the sector,
their supply chain management The supply chain is a vital component, traditional warehouses have
functions. Third-party logistics efficient planning of which can bring transformed to collection and storage
providers typically specialise in down costs to a great extent. points, where raw material,
integrated operation, warehousing and Manufacturers are working towards intermediate and manufactured goods
transportation services that can be leaner supply chains with lesser lead are collected, assorted, stored and
scaled and customised based on market times in order to gain competitiveness distributed to the point of consumption/
conditions and the demands and in the market. Transportation, sale. The warehousing market in India
delivery service requirements for their warehousing and distribution are the is expected to grow at a rate of 35 to
products and materials. critical components of the entire supply 40% annually, displaying high potential
chain. With manufacturing activity for growth over the next few years.
Emergence of increasing in the last few years, logistics Currently, the sector is highly
third-party logistics. has gained equal importance in order to fragmented with small players holding
provide better goods at lesser cost. small units distributed across states
The logistics market in India was valued with many challenges:
at ` 5.6 trillion in 2010 and is forecast to • Inadequate skilled labour
grow at CAGR of over eight per cent • Inefficient material handling with
Value-
Third-party
added over the next five years. World Bank has outdated handling equipment
logistics
agreement ranked India 47th among 150 countries,
Partnerships
in terms of logistics performance in • Limited technology penetration
Multiple 2010 and its potential in the future. It is and innovation
Transaction
forecast to grow annually at a rate of 15 • Lack of world-class standards
Single-activity
based logistics to 20% to reach ` 17 trillion by 2015. and specifications
However, logistics costs in India
Almost 92% of the market is dominated
constitute around 13 to 14% of its GDP
The burgeoning Indian economy, by unorganised players, while 70 to
against seven to eight per cent being
strongly supported by increasing FDI, 75% of the organised market is being
spent by developed countries such as
improved market reforms and controlled by PSUs such as Central
the US, Japan and other European
regulations and growing consumption Warehousing Corporation (CWC), the
countries. This is due to market
levels in the country has been the major Food Corporation of India (FCI) and
constraints such as highly fragmented
driver of the logistics market. State Warehousing Corporations
structures, poor infrastructure and
Outsourcing of manufacturing activity (SWCs). The current capacity of the
complicated tax structure.
has been on the rise for industries such organised warehouses, controlled by
as automotive and ancillary products, The government is investing in corporates, cooperative and private
pharma and industrial equipments. In infrastructure to make the sector more sectors, is 106.95 million metric tonnes
addition, the entry of global organised competitive, efficient and cost-effective. (MT), of which the private sector has
players in the retail sector has been Changing regulatory set-up, only 18 million MT, while Public Private
another driver for the development of government incentives, infrastructure Partnerships (PPP) are yet to start off in
organised players in the country. This development projects, increasing the sector.
6 PwC
Cold storage Growth drivers GDP, improving manufacturing
A cold storage is a temperature-controlled activity and merchandise trade
The growth in warehousing in India is
storage space and caters to industries such primarily being driven by the burgeoning The Indian economy has been registering
as agriculture, horticulture, fisheries and manufacturing activity, increasing buoyant CAGR of almost 10% in the last
aquaculture, dairy and processed food. international trade and the emergence of six years. Indian GDP in FY 2011 was
The highly fragmented cold storage organised retail in the country. Increasing recorded at ` 63 trillion, recording a
market has 5,386 cold storage units with private and foreign investments in growth of 8.5%. Though the economy
the total capacity of nearly 23.7 million infrastructure and easing government suffered in 2009 due to the global
MT. More than 56% of the capacity is regulations are further bolstering the recession, the quick revival of industrial
utilised by potato storage, while the rest is growth of the warehousing sector in India. production and surging domestic
used for other commodities. Currently, the consumption helped revive it.
Indian cold storage market is valued at Policy reforms from the government The growth of industrial output surpassed
` 117 billion and is expected to reach ` 558 including the establishment of logistics the growth of services in FY 2010 and FY
billion by 2015. Sixty-five per cent of the parks in the PPP model, the 2011. Agriculture has been losing share to
total installed capacity of cold storage in implementation of the Warehousing services, while industry is continuing to
the country is located in Uttar Pradesh and and Development Act 2007 and retain its share in the GDP.
West Bengal. The key activities involved in serious attempts to roll out Goods and
cold storages are as follows: Services Tax (GST) are added reasons for
• Aggregation the expected expansion in the
warehousing sector.
• Sorting
• Pre-cooling
GDP Growth Trends
• Packaging from farms
to manufacturers
Integrated cold storage warehousing has
huge potential in India. The cold storage
system, when supplemented with
Growth Rate (%)
GDP (` Trillion)
temperature-controlled transportation
connecting farm-level storage facilities,
processing units and distribution outlets
will not only improve efficiency but will
also solve our problem of wastage of
agricultural products. The cold chains
market is dominated by private players
despite the presence of state-owned
players. Though the government has
provided various incentives in tax and GDP (` Trillion) Growth Rate (%)
duties to encourage cold chain players the
results are yet to be seen. In addition, cold
chain and container-handling facilities
GDP growth at Overall Agriculture Industry Services
should also be augmented at major sea and factor cost
airports to target global markets.
FY11 (AE) 8.6% 5.4% 8.1% 9.6%
FY10 (QE) 8.0% 0.4% 8.0% 10.1%
FY09 6.7% -0.1% 4.4% 10.1%
FY08 9.2% 4.7% 9.5% 10.5%
8 PwC
As per the present policy, the government The recent increase in containerised cargo Ports
is focusing on accelerating the has led to a demand for its movement
Manufacturing and power projects and
development of the network for freight through railway containers. The
higher cargo traffic at ports are driving the
terminals with private investments in government, due to a lack of funds for
growth of the Indian ports sector. In
order to integrate rail projects with the infrastructure, has opened up the sector
addition, the government has been
supply chain. The government has already for private investments in 2006, thus
promoting PPP in the ports sector to
permitted 15 private train container paving the way for PPPs . In 2006, the
enhance the capabilities and traffic-
operators to run container trains. It has ministry of railways had announced a new
handling capacity of the ports.
also rolled out the following two schemes train policy, which allowed private players
to encourage investments in rolling stock to obtain licences for operating container The government has planned to invest
and terminals. trains on the Indian Railways (IR) ` 540 billion in 276 projects and has
network. This was done to attract more permitted 100% FDI under the automatic
• Special Freight Train Operator
container traffic and to introduce route for port development projects in
(SFTO): Through this scheme, the
competition in the sector. CONCOR, a order to improve port efficiency while
share of railways is expected to
subsidiary of IR monopolised the container handling increasing port traffic. The civil
increase in non-conventional traffic
trains, until 2006. Gateway Rail Freight aviation ministry is also taking measures
such as bulk alumina, fly ash and bulk
Pvt Ltd, was the first private entrant to run to improve airport efficiency through
fertilizers.
container trains and was followed by projects such as the multi-modal
• Private Freight Terminals (PFT): This Innovative B2B Logistics, Pipavav Railway international hub airport (MIHAN) project
is expected to enable the rapid Corporation, etc. at Nagpur, strategically located in the
development of a network of freight centre of the country. It may well become a
terminals and integrate rail transport The increasing competition in the sector is
hub-and-spoke distribution centre for
with the supply chain to provide paving the way for more systematic and
India. The growing containerised traffic
efficient logistics to end-users. sophisticated services by the railways and
coupled with government initiatives is
is giving tough competition to the road
The government’s Dedicated Freight expected to drive the sector.
sector as one of the most cost-effective
Corridor (DFC) programme is proposed to modes of transport in the country. In addition, private players are also taking
be completed in stages, with the western the initiative in developing port
(Delhi-Mumbai) and eastern corridors IT penetration has been critical in
infrastructure. For example, Shreyas
(Ludhiana-Delhi-Kolkata) being the first managing and streamlining processes.
Shipping and Logistics plans to invest
two to be developed. These corridors will This has eased container management at
` 1 billion to expand its shipping,
help boost India’s industrial productivity terminals with the help of online
warehousing and inland transportation
by transporting raw materials to industrial monitoring of transactions and container
capacities. It is also planning to set up
hubs and manufactured goods to ports in a traffic at terminals and depots.
warehouses at around 10 locations across
faster, more efficient manner, and at India to increase its trailer strength from
reduced costs. This will require the eight to 100 in phases to enhance its inland
construction of warehouses with world- transportation capacity. Such private
class facilities for the storage and initiatives coupled with government
dissemination of goods in transit. investments are expected to boost the port
Diamond Rail Corridor Project, a logistics in India.
dedicated freight corridor is being
commissioned, in order to connect the
western and eastern rail routes. In
addition, an investment of ` 58.5 billion is
being made in cooperation with the
government of Japan to commence
engineering services for phase-I of the
dedicated freight corridor. Improvement of
the eastern corridor will also contribute to
the development of the proposed Trans-
Asian Railway involving infrastructure
investments in India, Bangladesh, and
countries further east.
10 PwC
India has become a manufacturing hub Automotive planning to set up two new automotive
for most industries. The main reasons The automobile industry in India has manufacturing hubs spread across
for this are increasing domestic attracted much attention due to the 10,000 acres each in central and eastern
consumption and the cost-effectiveness sharp increase in the sales of India. Mahindra World City is a
of outsourcing manufacturing activities. automobiles in the country. In January prominent SEZ, located in Chennai,
Some industries have gained 2010, total automobile sales in the Tamil Nadu. Companies such as
tremendous traction over the last few domestic market reached 1,11,4157 Wabco-TVS, Brakes India Limited,
years, cashing in on the ongoing trend units. The figures show an increment of Madras Engineering Industries,
of the economy. These include the 44.9% compared to the sales units of Sundaram Brake Linings, Sundaram
following: 7,68,698 in the same period last year. Clayton, Sundaram Fasteners, Timken
• Automotive Annually, the Indian automobile India and UACL Fuel Systems have set
• Retail industry is growing at an average rate of up their manufacturing units in the SEZ
• Pharmaceutical 30% and marking itself as one of the to harness the advantage of being the
• Agriculture fastest-growing industries in India. The major auto export hub in India. The
market, estimated to have a turnover of main purpose of these SEZs is to help
over ` 3 trillion in 2011, is expected to manufacturers either set up their own
grow by 11 to 13% during 2011-12. warehouses or outsource them to 3PLs.
The SEZs provide manufacturers with
Now, with the advent of foreign players dedicated as well as shared-user
into the market, the increasing facilities wherein, two or more
importance of efficient logistics and Just manufacturers share the warehousing
In Time (JIT) services, has made the services in order to cut down their
automotive logistics industry in India supply chain costs. This has also
evolve much faster as compared to that increased the need for the use of
in other sectors. Almost all players in modern technology such as RFID and
the automotive industry use 2PL or 3PL WMS to track the goods in the
for a part of their logistics operations. A warehouses.
trend towards creating a perfect blend
of in-house and outsourced service The 3PLs such as DHL and NYK also
components to effectively manage provide value-added services such as
supply chains is leading to the assembling, pre-delivery inspection,
emergence of 4PL services. cross-dock facilities, consolidation and
deconsolidation centres, automation
Warehousing has been gaining and sorting, catering to the needs of the
tremendous importance due to the automakers. The auto logistics market is
growing need to reduce storage and expected to transform from traditional
lead times for inventory. In addition, the in-house logistics to increased
concentration of the auto outsourced activity to specialised 3PLs.
manufacturing activity in a few places This in turn is expected to result in
has led manufacturers to construct sophisticated and mature supply chains,
warehouses in strategic locations, which thus reducing costs and fostering the
then serves as the central point for growth of the auto logistics market.
distribution and collection of finished
and intermediate products including Retail
auto parts. This primarily works on the The retail market in India has been one
theory of augmentation and assortment. of the most attractive investment
The government has also contributed to destinations for multinationals and
the growth of the warehousing sector. It private equities. According to US
has established Special Economic Zones consulting group AT Kearney’s report
(SEZs) especially for auto published in June 2010, India is the
manufacturers, usually close to the third-most attractive retail market for
ports, to cater to the growing demand in global retailers among the 30 largest
the automobile sector. SEZs in Haryana, emerging markets. Favourable
Jharkhand, Karnataka, Maharashtra, demographics, rising disposable
Tamil Nadu and West Bengal are incomes, increasing urbanisation,
established by government. It is now relatively low penetration along with
12 PwC
Pharmaceutical Agriculture Shree Shubham Logistics Ltd has already
established five out of the 11 planned
The pharmaceutical market is one of the Agriculture, one of the main occupations
state-of-the-art agri-logistics parks (ALPs)
few sectors, which has been relatively of India, accounts for about 16% of the
providing world-class warehousing and
resilient during the economic downturn. A GDP. Despite agriculture losing its share in
storage facilities. It will provide cost-
highly efficient logistics operation and GDP, it is still the largest economic sector.
effective end-to-end supply chain
integrated supply chain is essential to Lately, agriculture has been regaining its
solutions, scientific and reliable storage
support the growth of the pharmaceutical sheen, with the government and private
facilities with support amenities such as
industry. Most pharmaceutical companies entities taking special interest in
weighing, testing and certification.
have increased the outsourcing of their developing the sector. However, the
Cleaning, sorting, grading, packaging and
logistics functions to 3PLs mainly due to agriculture supply chain in India suffers
funding will be easily available. This will
the pressure of lowering operation costs from inefficiencies in the supply chain,
benefit the farming and trading
and increasing supply chain efficiency. leading to heavy losses of commodities
communities as well as corporates. These
Logistics costs account for about 45 to 55% throughout the country due to lack of
ALPs are expected to bridge the gap
of the costs in the pharmaceutical value proper storage and transportation
between the demand and supply of the
chain. These costs include packaging, facilities. It is estimated that about 20% of
required logistics services.
distribution and other value-added the foodgrains are destroyed annually
services. because of poor storage facilities. Apart from the logistics companies, even
industry houses such as Reliance, Godrej
More consolidation and integration of There is a huge gap in the quantity of
and the Aditya Birla Group are entering
logistics operations are likely to happen in agricultural produce and the available
the retailing segment of fresh produce and
the future as customers are constantly storage. An estimated cumulative loss of
commodity markets. They are building
looking to outsource their logistics ` 550 million is expected, owing to the
their own warehouses and arranging
operations to logistics service providers. lack of proper cold storage facilities for
transportation from farms to retail outlets.
Pharmaceuticals require highly reliable agricultural produce. The huge gap
With the increasing participation of private
and safe storage spaces as they are between the demand and supply of
players in the market, the agri-logistics
temperature-sensitive and require an logistics services, which was left
market, predominantly an unorganised
environment where temperature range unattended due to the unorganised nature
sector, is expected to consolidate and
can be pre-defined to accommodate the of the market, has opened up many
evolve gradually over time. This
specific qualifications of the cargo. As opportunities for players.
consolidation will result in the
Indian pharma companies seek Most supply chain activities for agriculture requirement of huge warehousing
opportunities to supply drugs to the global are handled and controlled by the capacities with proper infrastructure and
market, more developed cold-chain state-run CWC and FCI or by the seamless backward and forward
management practices will be required to unorganised sector. Agricultural produce integration to manage the supply chain.
maintain their competitiveness in the has to be procured from government-
market. designated centres, run inefficiently by
Some of the companies have either set up middlemen, who operate in cartels.
their own cold storages or have outsourced However, the scenario is now changing
it to specialised 3PLs. For example, Eli Lilly with the entry of many private and
in India have implemented initiatives such multinational retailers into the market.
as having their own vehicles equipped The advantage of backward integration of
with cold-chain management systems. their existing activities into the agriculture
Other companies such as World Courier sector has helped many companies join the
have developed cold-chain management fray. This move has encouraged several
models to help pharmaceutical companies logistics players to enter the untapped agri-
maintain the cold chain. logistics market.
Players like Shree Shubham Logistics of
the Kalpataru group, Adani Agri Logistics,
SafEx, National Bulk Handling
Corporation (NBHC), National Collateral
Management Services (NCMSL) and a
host of unorganised players have already
entered the market by setting up facilities
for the agricultural sector. For example,
14 PwC
Despite its strategic importance in the agencies. The lack of existing clear the players in this sector are small
Indian economy, the opportunities that land classifications in Indian cities or medium entrepreneurs, they are
the Indian landscape presents and its and the reclassification of land are unable to provide collateral in order
immense potential for growth, the major concerns as far as the to avail of loans from banks and are
Indian warehousing sector confronts development of warehouse zones hence denied credit.
several challenges. While the lack of are concerned. With land values • Fragmented market with
sufficient physical infrastructure is one peaking in the last three to five unorganised players: Economies
of these challenges, the time lag years, the availability of affordable of scale cannot be explored as the
between devising and implementing land is another concern for the warehousing sector in India is
strategies due to the lack of industry. It is getting increasingly dominated by small players with
international warehousing standards is difficult to procure land at small capacities spread across
another. Indian warehousing players affordable prices for building India. Also cold-chain logistics
face challenges and bottlenecks at warehouses in India due to solutions are always driven through
various stages of their operation escalating valuations even in the consolidation. All over the world,
lifecycle. Some of these challenges are fringes of large cities. To add to the cold-chain service providers have
strategic while others are operational misery, further different states have large fleet sizes and big warehouses
and need to be managed on an different rules regarding with state-of-the-art technology. So
ongoing basis. agricultural land acquisition, which far, the current practices of fleet
The sustainable growth of the create entry barriers and have ownership and other policies in
warehousing sector will rely heavily on serious cost and time implications. India have not encouraged large
how effectively industry players and the • Lack of standardisation: The ownership of fleets. Thus, the costs
government can work together to demand for warehousing comes of cold chain supply are prohibitive
address challenges in the long term. from many sources with specific at a large scale in India.
Some key challenges that Indian needs. The lack of warehousing • Power outages: Power outages are
warehousing players face are briefly standards and accreditation poses a a major problem currently plaguing
discussed below: significant challenge to the cold chains leading to a huge
industry where quality and wastages of agri-products every
Strategic challenges: flexibility of available warehousing year in India. The increasing cost of
• Infrastructure: Infrastructure is space is a major concern. In most power adds further to the
one of the most important cases for ready-to-occupy warehousing cost for agri-products.
components of the warehousing warehouses, the companies have to
sector. An efficient warehousing invest further in order to upgrade • High costs due to long transit
operation hinges critically on the space and its specifications to time: Longer transit time and
high-quality supporting standards that support their inadequate infrastructure also
infrastructure that includes a good operations. As we go forward, the increase transportation costs. This
national highway network, demand from occupiers is expected leads to collection of material
interstate roads and congestion- to put pressure on developers and directly at mini-warehouses
free city roads. The total share of owners to adopt the standards distributed across locations thereby
organised warehousing space is less formulated by policymakers. Many defeating the purpose of
than eight per cent of the total of the ready-to-occupy off-the-shelf augmentation and distribution.
warehousing space in India. The basic warehouses do not easily lend • Complex tax regime: The delay in
industry is fragmented and largely themselves to upgradation in terms the implementation of GST and the
unorganised and is dominated by of technology compliance or existing complex sales and
small players with small capacities, accommodating automated transport tax system tends to
not well-linked with the national equipments. discourage the establishment of a
highway network and interstate • High cost of credit: Access to national-level centralised
roads. adequate and timely credit at a distribution centre or hubs, the
• Land availability: Procurement of reasonable cost is one of the most likes of which are often seen in
land in a strategic location with critical problems faced by this developed countries.
clear title and proper approvals is sector. The main reason for this has
still a key challenge for any new been the high-risk perception
entrant to set up a warehouse. among banks about the
Government policies have unorganised nature of this sector
intervened with the help of various and the high transaction costs for
initiatives through various loan appraisal. Since a majority of
16 PwC
Creating a competitive
warehousing market
in India
18 PwC
Few major KPIs applicable for the
warehousing industry are as follows:
Cost statistics
Inventory management cost as a percentage
of revenue
Inventory management cost per full-time
equivalent
Inventory management cost per order
Inventory management cost as a percentage of
total inventory
Inventory management cost breakdown
Staff statistics
Average annual training hours per employee
Personnel with certifications from professional
associations
Systems statistics
Electronic shipment and receipt confirmation
percentages
Technology usage
Integration of information systems
20 PwC
Presently, the warehousing sector in break bulk operations, processing/
India is in a highly fragmented state and postponement, assortments, proper
comprises numerous competitors handling practices including usage of
ranging from small truckers to non- warehousing equipment like stackers,
registered business entities, which only pallet trucks, etc. and the ability to
offer some space for storage of goods. understand and use information and
The majority of the players in this sector communication technology.
are small entrepreneurs running the The growth in the number of private
warehouse as a storage facility for a container train operators (PCTOs) in
single or multiple companies in India. India has given a boost to the
The emergence of the logistics industry development of CFSs and ICDs which
in India and the compulsion to move require specific operational skills of
away from traditional working methods loading/unloading, stuffing/destuffing
are great opportunities for players to etc. at the operational level.
apply out-of-the-box thinking. However, Similarly, cold chains demand
this opportunity is plagued by many technically competent manpower
bottlenecks and one of the most critical capable of understanding the
is skill and talent deficiency. There is a temperature and humidity control
huge gap in the knowledge and skill set requirements and skill for operating
requirement vis-a-vis availability. There sophisticated controlled atmosphere
are in fact very few professionals in the equipment.
warehousing field in India and most of
the activities, strategic or operational, The tables here provide a snapshot of the
are done by generalists. Skill and talent profile of people presently employed in
issues exist in varying degrees in the the warehouse sector in India.
warehousing sector in India. The core Qualification and number of Hierarchical
issues leading to existing skill gaps in the years of experience levels
sector include the following: 1 Graduates with 5-7 years Managers
• Rapidly evolving warehouse of industry experience
management processes and 2 Diploma holders/graduates Supervisors
operational skill requirements, with 4-5 years of experience
3 10th/12th pass with/without Operators
• Absence of structured skill experience
development initiatives,
Source: www.nsdcindia.org
• Limited experienced professionals,
By 2015, India will need approximately
• Poor facilities for-on-the-job 35,000 to 40,000 warehouse managers.
training, But there is no training institute which
• Lack of attraction for new recruits can train people for managerial skills or
arising from inadequate working to cater to the needs of mid-level
conditions, managers in the Indian warehousing
• Relatively less attractive incentives industry. The operational needs for the
and benefits, and industry as far as skilled labour is
concerned, will undergo a tremendous
Going forward, due to the entry of change because of India’s central
international retailers and many global position in the world economy. It will
manufacturing players in India also raise training needs because of
combined with the changes in the tax technological changes as well as
regime, this sector is likely to experience evolving customer expectations.
consolidation and hence large-scale
warehouses. These developments will Several business schools offer executive
drive the need for value-added services development programmes, which impart
associated with warehousing that theoretical know-how but largely lack
require specialised skills like picking and practical skills.
packing, inventory management,
stockpiling, shipment consolidation,
Building warehousing competitiveness 21
The detailed skill gaps observed in the The required pace of efficiency and quality 3 Operators/workmen/front-line staff
warehousing sector in India for some of improvement will demand rapid
the reporting ‘levels’ at the operational development of capabilities of
level have been detailed here: warehousing service providers in India. Skills required
With the changing needs of the • Knowledge of stocking, packing
warehousing sector in India, there are and handling practices, including
S .No Hierarchical levels
loading and offloading goods at
specific profiles that will have to be
1 Manager (C & F agents) different locations in the
developed both in terms of quality and warehouse
quantity.
Skill gaps • Ability to place goods in
The detailed skill requirements in the appropriate racks
• Limited knowledge of the latest
warehousing sector in India for some of • Ability to manually mark or pack
and innovative warehousing
technologies/formats the reporting ‘levels’ at the operational goods, as required
level have been detailed here: • Basic reading skills for
• Inadequate exposure/knowledge
of warehousing IT systems understanding the written or
S .No Hierarchical levels visual communication about
• Inadequate ability to invest in standard operating procedures
1 Manager (C & F agents)
human resource development
Skills required • Ability to undertake value-added
• Inadequate knowledge of safety services such as MRP tagging,
and security measures • Excellent spoken and written repacking, quality checks, etc.
language skills for meaningful
• Inadequate knowledge of industry-
interaction with customers and for
specific stocking and handling
proper documentation Source: www.nsdcindia.org
practices (FMCG, perishables,
textiles, etc.) • Knowledge of local language for
interacting with in-house workers
2 Supervisors • Team skills for motivation to
improve operational efficiency
Skill gaps • Awareness of new technologies to
take decisions regarding capital
• Inadequate ability to maintain
investment in appropriate
appropriate inventory levels,
technologies
leading to typically high inventory
at warehouses • Knowledge of inventory, order
management
• Inadequate verbal and written
communication skills to manage • Ability to maintain specific
information flow between standards and requirements such
workmen and managers as temperature conditions in case
of perishable goods, safety of
• Inadequate team management
goods, etc.
skills, leading to the demotivation
among workers • Ability to ensure training in core
warehousing operations as well as
• Inadequate knowledge of global
non-core or support and other
best practices
value-added services
2 Supervisors
3 Operators/workmen/front-line staff
Skills required
Skill gaps
• Ability to monitor daily warehouse
• Inadequate knowledge about
operations
material-handling equipment
• Ability to maintain records of
• such as stackers, hydraulic or
incoming or outgoing goods
hand-pallet trucks, forklift trucks,
jib cranes, etc. • Ability to maintain records of
wastages such as goods spillover
• Inadequate formal training
during packaging, damages, and
leading to on-the-job learning
reporting it to managers
• Inadequate ability to maintain
• Ability to undertake invoicing and
service standards, leading to
order processing
damages
Source: www.nsdcindia.org
22 PwC
The growing warehousing industry has
created huge opportunities for direct and
indirect employment. It is up to the
government, policymakers and private
players to tap this opportunity and
accelerate the growth rate of the
mushrooming logistics industry. Various
initiatives will have to be undertaken to
improve the skill level and develop talent
in the warehousing sector in India. This
will necessarily require a collaborative
approach by various industry stakeholders.
Leaders in the warehousing sector in India
will need to pull together their resources to
push for the establishment of a structured
training infrastructure and provide
incentives to employees for learning and
development related initiatives.
The LSPs can also partner with
management institutes and other
organisations that can cater to operational
as well as strategic know-how of the
middle and top management of such firms.
Some stakeholders have taken actions to
reduce skill gaps. The education company
Everonn Education of Chennai and Future
Human Development Ltd (FDHL) of the
Future Group have entered into a 50:50 JV
to provide relevant training in supply
chain management.
The sustainable growth and development
of this sector’s manpower requires
collaborative effort and commitment from
industry leaders as well as the government
of India.
The government will need to support
warehousing players in their initiatives
and provide for a more conducive
environment by providing tax havens,
funding facilities, upgrading
infrastructure and accelerating the
consolidation of the industry. The PPP
model can also be developed for building
dedicated training institutes for the
logistics industry. The National Skill
Development Corporation (NSDC) can
play a pivotal role in promoting skill
development and organising vocational
training for the workforce. With known
success stories in various sectors, NSDC
can foster private partnerships to bridge
the skill and talent deficit in the
warehousing sector.
24 PwC
Today the role of technology has Advantages of IT • Higher customer satisfaction
transformed from being an enabler of IT adoption has the following Automated order-picking systems
productivity and quality through advantages that can help warehousing allow for greater flexibility with
process automation and quality control players increase their competitiveness: respect to how and when an order
to a more strategic role as a key is assembled and the order to be
influencer of competitive advantage. • Reduced labour costs picked up at any time, improving
The last decade of the 20th century has Automated storage and order- response times and increasing
witnessed rapid technological advances, picking systems can reduce the fulfillment consistency and quality.
especially in IT. Increase in IT adoption need for labour and wheeled All this contributes to higher
and knowledge infrastructure can machinery in the warehouses. In customer satisfaction
provide a boost to the growth and automated goods to person
order-picking systems, the right • Quick response and access to
maturity of warehousing players in information
India. IT has today presented goods are brought automatically to
the right person at the right time. Automation of warehouses through
enterprises with possibilities of warehouse management systems
delivering substantial operating savings This eliminates the need to walk,
increasing the productivity of helps eliminate paperwork and
while at the same time improving the costly shipping errors by helping
quality of order fulfillment. slower-moving SKUs nearly 10
times from traditional zone-picking access the information quickly and
India’s warehousing technology market efficiently.
in India is growing steadily, with the or pick-to-pallet approaches.
upswing in demand from the thriving Higher productivity automated • Track and trace
logistics, retail and manufacturing systems also reduce the number of Warehouse management systems
sectors, as well as government operators required for storage, can track inventory throughout the
promotion. As the booming picking, packing, etc. warehouse and the movement of
manufacturing and retail sectors are the • Improved space efficiency the product from one location to
main users of these technologies, By making maximum use of the next.
sustained demand from these areas is headroom and minimising aisle • Standardised procedures
ensured. For instance, Wal-Mart has widths, automated storage systems Use of warehouse management
made it mandatory for its suppliers to for pallets, tote-bins and cartons, systems ensures standardisation of
deploy RFID. The growth of India as a we can reduce footprint processes and procedures such as
major sourcing nation for the world’s requirements for stock storage and set acceptance standards for
leading retailers is also ramping up with it land and storage costs. product receipt, monitoring vendor
demand. Until recently, the logistics performance, managing customer
• Improved ergonomics and safety
industry was highly unorganised, inventory, expediting orders more
Automated storage systems reduce
comprising predominantly medium- efficiently, etc.
the need for forklift trucks and
and small-sized LSPs. However, the
eliminate the need to have pallet
trend is changing with the increase in
movements interleaved with other
the number of organised LSPs and
tasks such as order-picking.
improvement in the services offered by
Automated goods to person
them through 3PLs and 4PLs.
palletising stations provide for
To obtain the cutting edge in the
sliding rather than lifting of cases.
market, logistics and dedicated
Also, ergonomic pick-from-tote
warehousing companies are
stations for small and split-case
adopting these technologies to
items minimise bending and
improve warehousing and supply
twisting, reducing injuries,
chain management. This enables
complaints and lost time.
them to achieve maximum
warehousing efficiency. • Flexibility to different order
profiles
Automated order-picking systems
are equally productive for small as
well as large orders and the
productivity is independent of the
number of SKUs as against the
manual systems, where more SKUs
and smaller orders mean greater
walking distances which reduce
productivity.
Building warehousing competitiveness 25
IT intervention in the of managing operations and • Ability to manage and operate each
warehousing sector tracking inventory is still the and every movement in a
Warehouse management systems best bet. warehouse
Warehouse Management Systems • For service providers operating at a • Shorter implementation cycles
(WMS) is one of the most significant regional level who have • Ability to track, trace and centrally
technologies used for logistics which significantly large operations with manage inventory stocked in all
enables efficient management of considerable volumes like regional facilities, channels, regions and
material flow, proper tracking of the distributors, small logistics firms networks
movement of goods and on-time managing inventory for their
customers, or replenishment • An intelligent analytics and
delivery of goods to customers. WMS is dashboard to manage KPIs
a system to manage the segment of an locations for retailers, mini WMS
enterprise’s logistics function solutions are available that are • Ease of integration with ERPs like
responsible for the storage and handling good in managing inbound and SAP and Oracle
of inventories beginning with supplier outbound operations and can also
• Competitive pricing
receipt and ending at the point of manage and track inventory levels.
Organisations using various ERPs Other technology interventions
consumption. It is a software application
that supports the day-to-day operations can also extend their ERP systems • WMS solutions can be standalone,
in a warehouse, by enabling centralised and use a WMS module that will like those supplied by RedPrairie,
management of tasks such as tracking help resolve integration challenges. Infor, Manhattan Associates or can
inventory levels and stock locations. Its Such solutions can be customised be part of an ERP application as in
primary objective is to manage a and are also easy on the pocket. the case with warehouse
warehouse’s resources, including • For service providers running large management solutions from SAP,
space, labour, equipment, tasks and warehouses and 3PL companies Oracle and other IT solution
flow of material. having multiple customers and providers in the domain. Several
facilities spread across the nations. ERP-based WMS are being used in
Today, a complete warehouse
These organizations have India for warehouses attached to
management system incorporates
multitude transactions and factories.
picking, inventory control, label-
printing, return material authorisation inventory movements within and • Heavily automated facilities are
(RMA), receiving and automatic data outside their network. For these using a warehouse control system
collection (ADC), wave/batch/zone organizations , WMS systems can (WCS) that controls conveyor belts,
picking, task-interleaving, integration manage inbound, outbound, carousels, and other materials-
with automated material-handling value-added service, work order handling systems.
equipment, cycle-counting, cross- management, quality checks,
picking, packing, shipping are • Retail-warehouse management
docking, pick-to-carton/pick-to-light, systems are implementing
yard management, transport needed. RFID integration, global
inventory view, intelligent automatic data detain and
management, labour management and identification technology
voice-picking, multiple inventory analytics, ERP integration etc.
integrated with mobility solutions
ownership, billing and invoicing and Typical features needed such as mobile computers, GPS,
voice-directed distribution and much • Timely order fulfillment SMS gateway linking barcode
more. scanners and RFID. These can
• Economical management of
There are multiple forms of WMS professionally supervise product
resources
solutions available in market used by flow all through the warehouse.
LSPs. The need for WMS is completely • User-friendly features
• The warehousing sector in India is
dependent on the complexity (in terms • Ability to cater to typical Indian also using voice-based solutions
of size and volume) of warehousing requirements including legal and that provide the ’process logic’ that
operations and throughput efficiency statutary requirements taxations, directs a warehouse employee to
(in terms of operational productivity): road permits, etc. perform functions with accuracy.
• For service providers with small • Rich functionalities as provided by These solutions free the workers’
godowns in cities or towns storing Best-of-Breed (BoB) solutions hands and eyes allowing them to
small amounts of inventory proven in thousands of sites across completely focus on their work and
catering to local markets like local the globe having the ability to cater communicate with the WMS
distributors and suppliers and to growing volumes system using the most natural form
whose operations are simple with of human communication, which
limited volumes, traditional ways is voice.
26 PwC
Barriers to IT adoption • Awareness of IT benefits: The
Although the prospects for the management in most warehousing
warehousing technology market look firms are small entrepreneurs who
upbeat, there are some challenges do not have a good understanding
preventing forward momentum. The of IT and its benefits. The skilled
sector is generally perceived to be resources in the warehousing sector
reluctant in investing in IT. Several have very limited exposure to IT
factors like the unorganised and thereby creating an understanding
fragmented nature of the sector, lack of gap on the value proposition of IT
regulatory compulsions and the view of utility vis-a-vis IT investments.
the players of IT as an expense rather Though there is no dearth of good
than an investment are said to have WMS solutions in the market, there
contributed to the low penetration of IT is a dearth of management keen on
in this sector. implementing WMS at their
warehouse, keeping long-terms
Some of the factors that act as barriers to benefits in mind.
IT adoption in the warehousing sector
have been detailed below: • Training issues: Very few
warehousing sector employees
• Absence of affordable solutions: undergo IT training during the
Technologies such as WMS and course of their employment.
RFID are significantly expensive,
making them unaffordable for a
majority of LSPs, warehousing
players and end-users. The price-
sensitive nature of the Indian
consumers prevents them from
opting for such technologies. This
has deterred the growth of the
warehousing technology market.
• Cost: Most warehousing players in
India are cautious about investing in
an expensive full-scale WMS. They
find it easier and quicker to employ
more people. Larger acceptance of
low-cost or in-house applications
has also hindered the acceptance of
sophisticated WMS systems. Lack of
long-term planning and small
warehouse sizes also do not justify
the cost of WMS implementation.
• IT budget: Most warehousing firms
do not have a formal IT budgeting
process and hence don’t plan for IT
investments.
• Network infrastructure issues:
Reliability and affordability are key
network infrastructure concerns for
a majority of warehousing players in
India, especially those that have
warehouses in remote areas of
India.
28 PwC
Government
initiatives: Policies
and measures
30 PwC
New tax policies to reduce through Report of the Task Force on
supply chain costs Goods and Services Tax:
The government has introduced good tax • It categorically stated that the tax on
structures to reduce supply chain costs and vehicles and tax on goods and
also to encourage the participation of passengers levied by the state
private players in the system. Octroi was governments should be submitted in
one of the traditional taxes introduced by the GST.
the government. This was introduced with • The task force felt that all transport
a view to develop warehouses and equipments and all forms of services
trans-shipment hubs outside octroi/state for transportation of goods and
boundaries. However, it was objected to by services by rail, air, road and sea must
logistics organisations since they allow form an integral part of the
delays at the octroi checkpost as they comprehensive GST base
ensure that only goods which need to enter recommended by the task force over
the octroi zone do so. Otherwise, further which both the central and state
delays are involved in pre-paying octroi on governments would have concurrent
other goods and collecting the refunds jurisdiction.
later.
• The tax regime for transport
The implementation of VAT played a equipment and services should be the
significant role in reducing logistics costs. same as in the case of any other
VAT was introduced to avoid the cascading goods.
effects of tax as it was being paid at each
• The task force stated that it is not
level. However, a simplified tax regime
necessary to levy a higher rate of tax
will help logistics players service multiple
on vehicles as is the existing practice
markets and offer end-to-end solutions far
since it is proposed to subject the use
more efficiently and at much lower costs.
of these vehicles to tax at higher rates
Private sector participation plays an through excise on emission fuels.
important role in developing the
The introduction of GST will result in the
warehousing sector rapidly. Illegal
Indian manufacturing sector being
warehousing can be curbed by the
globally competitive and will promote
government by setting up stricter and
entrepreneurial initiatives and economic
clearer rules. This will enable deeper
activity, on the whole. Most of the
penetration by international and domestic
manufacturers have constructed regional
players into the warehousing sector. The
warehouses of their own to avoid inter-
traditional tax policies failed to encourage
state taxes. But under GST, they can
this as they led to cascading effect on the
streamline their operations and outsource
downstream industry, thus leading to
their operations to 3PLs to save up to 20%.
higher cost for such industries.
This is also expected to encourage the
The government had then taken a step construction of centralised warehouses at
forward to phase out Central Sales Tax key strategic locations that can operate on
(CST) and introduce GST, expected to the hub-and-spoke model, in turn
revolutionise the entire warehousing outsourcing the logistics activity to the
sector. GST, with a uniform tax-rate, is organised segment. However, tax rates
expected to increase revenue by increasing and structure are yet to be decided.
tax collections, while it will help the
logistics industry in re-arrangement, to
enable the manufacturer to store and
distribute goods across the country
without any state boundaries. The
proposed tax structure is expected to
integrate the country economically and
also make cheaper goods available.
The 13th Finance Commission had
recommended the following measures
32 PwC
Investment requirement 3 technical know-how and acquiring
Investment
skilled manpower, to become more
required
2
Investments are needed in the
warehousing sector in India to provide 1 competitive.
organised capital to achieve a world- 1 2 3 Significant opportunities exist across
class infrastructure platform and to Industry performance indicator every segment of the Indian
support greater sophistication in transportation and logistics industry.
services. CRISIL Research projects The capital cost to build a warehouse International logistics companies have
investments of ` 170 billion to 190 unit of 0.15 million square feet is ` 140 entered the Indian market, most
billion in establishing warehouses by million to 150 million (including land international port operators are
2012-13 in India. A significant cost). The total cost will, however, vary operating terminals across the Indian
proportion of investments in depending upon exact location, coastline and private equity investors
warehousing are envisaged in the free proximity to the port/industrial hub, have made investments across
trade and warehousing zones and road/rail infrastructure, etc. CRISIL infrastructure and services categories.
logistics parks. By 2012, more than 100 Research estimates the capital cost of a The logistics sector, on an expansion
logistics parks spread over more than typical warehousing player, with a drive, offers strong and free cash flow
5,000 acres are expected to be pan-India presence, to be in the range of coupled with low capital expenditure
commissioned. The growth will be ` 700 million to 750 million. for potential investors.
driven by organised warehousing,
Source of funding A global private equity firm, recently
changing tax structure and potential made an investment of USD 100 million
savings in carrying costs. The last couple of years have seen
in India’s leading logistics and
considerable growth in investments
The table here shows CRISIL Research’s warehousing company. This logistics
through the PE and M&A deals in
Industry Performance and Investment company is one of the largest private
logistics, ports, warehouses and
(IPI) Matrix which determines the warehouse providers, with over 10
container freight stations in India.
health of the Indian warehousing sector. million sq feet of storage space across 10
FTWZs, freight stations and cold chains
This information also reveals a score of locations in India. This private equity
are increasingly being seen as attractive
2 out of 3 for the warehousing industry firm has acquired a minority stake in
targets now. Asset-heavy investments in
on the industry performance scale as the logistics company’s flagship
the Indian logistics sector have mostly
well as on the investments required company. The new partnership will help
been observed to be PE investments and
scale. The industry performance the logistics company rapidly develop,
asset-light have mostly been strategic
indicator measure takes into account create and offer the best feasible
M&As.
the warehousing sector’s growth national network of logistics
prospects and returns. The investment The warehousing sector’s highly infrastructure facilities in India.
required measure takes into account the fragmented nature is said to attract PE
A supply chain and logistics firm also
likely investment in the sector, given its funds, which have played an important
plans to invest ` 2,500 crore to set up
investment intensity, growth phase and part in industry consolidation by
five FTWZs across India. FTWZs will be
investment cycle. focusing on aggregating smaller players
created to allow duty-free storage of
and building scale through acquisitions.
Over the last three years, the industry imported goods and provide space for
Even cross-border acquisitions are
has recorded a CAGR of 10 to 12%. assembling products.
making their way in this sphere. Within
Going forward, it is expected to post a Moving a step ahead in this direction,
the warehousing sector in India,
CAGR of eight to 10% over the next YES Bank and National Collateral
significant investments have been
three years. In line with this, revenue Management Services Limited
observed in CFSs, yards and
and net profits of major players are (NCMSL) have partnered to provide
warehouses on the ports, custom-
further expected to grow over the collateral management and
bonded warehouses near ports,
medium term owing to higher growth warehousing services. Through this
shipyards, godowns, road-linked
in FMCG sectors and proposed mechanism, YES Bank plans to avail of
express cargo hubs and road-linked
implementation of the GST from April NCMSL’s services like working capital
logistics and food parks.
2011. Investments of ` 170 billion to 190 financing to enter agro-based
billion over the next three years are Logistics parks and FTWZs are still in a
commodity industries.
expected which are significant for a nascent stage in India. Investors in these
mid-sized emerging segment such as sectors will have to bring in the
warehousing. This gives it a score of appropriate know-how from more
2 on the investments required scale. mature markets. Going forward,
investors in the warehousing sector and
cold chains in India will have to assist
players in streamlining operations,
building business plans, gaining
Building warehousing competitiveness 33
Some other key PE investments in the
logistics and warehousing sector as shown
here are at different stages:
Continental Warehousing
Container freight 443.67 Warburg Pincus
Nhava Sheva
Fourcee Infrastructure
Logistics 115.35 India Equity Partners
Equipments
Logistics (agri-commodities
JICS Logistic 39.93 IIML
warehousing)
Logistics
Swastik Roadlines 44.37 India Equity Partners
(cold chain)
34 PwC
Increasing the attraction for Investments in agri-warehousing are
potential investors critically deficient in India. The
Some PE funds are still wary of investing knowledge and input from the fund
in the warehousing sector given the management team will help further
small size of companies and therefore, growth of the investee company’s
lower investment ticket sizes. Several agri-warehousing and collateral
factors affect the investment flow in the management activities. The investment
Indian warehousing sector. Concerns will help deepen the commodities
linger over the endurance of the market in India while also enabling
economic recovery in many developed liquidity of warehouse receipts and
markets. The complex ownership strengthening price risk management
structures of warehousing companies in capabilities of various stakeholders
India and weak corporate governance across the value chain, right from
standards also act as deterrents for farmers to processors.
potential investors looking for
investments in the Indian warehousing Healthier capital markets, which
sector. continue to recover from their post-
The key to more investments in this leverage bubble hangover, the improved
sector is, thus, unleashing the credit market conditions, an improved
tremendous scope for improvement in environment for financial investors and
the Indian warehousing sector. Much of PwC’s analysis of financial statements
it will be driven by infrastructure indicate that many large strategic
upgrades. As investments into India’s investors will be in better position to
infrastructure sector gain pace, investors engage in new deals in 2011. The focus
will also look to put more money into on liquidity and de-leveraging during
warehousing and freight transport. Also, the downturn has resulted in improved
to increase their attractiveness to balance sheets with reduced debt ratios
potential acquirers or PE funds, the and substantial increases in average cash
warehousing players in India will have to positions. Thus, by concentrating on
concentrate on the following: these improvement opportunities, the
• Acquiring clarity on the vision and Indian warehousing players can be
growth strategy of the acquirer better positioned to attract the right
investors that can further aid them in
• Standardising and streamlining increasing their competitiveness.
processes within the warehouses
• Ensuring appropriate tax planning
• Enhancing the use of appropriate
technology
• Entering new and untapped target
customer segments
• Building synergistic products and
services for integrated solutions
across the value chain
• Innovating operating models
• Offering value-added services
• Providing shorter lead times
• Providing differentiated services
and products
36 PwC
Bibliography
CRISIL Research
National Skill Development Corporation (www.nsdcindia.org)
McKinsey Quarterly – “Transforming India’s Logistics infrastructure”
Department of Commerce
Warehousing Development Regulatory Authority (WDRA)
Jones Lang LaSalle Meghraj – “The Transforming Landscape of Indian Warehousing”
Colliers – “ Logic of Logistics, 2009”
World Bank
AT Kearney’s report on retailing
BMI India Retail report
Society of Indian Automobile Manufacturers (SIAM)
Journal Of Computing, Volume 2, Issue 5, May 2010, Issn 2151-9617
Financial Express (www.financialexpress.com/news/logistics-space-is-hotting-up/613895/0)
India Brand Equity Foundation (www.ibef.org/artdisplay.aspx?cat_id=109&art_id=25460)
Livemint (www.livemint.com)
India Private Equity (www.indiape.com)
VCCircle (www.vccircle.com)
Frost and Sullivan – “Strategic Analysis of Growth Opportunities in Indian Warehousing Market”
DealCurry (www.dealcurry.com)
Contacts
Rachna Nath
Executive Director/Partner
Direct: +91 (22) 6669 1539
Mobile: +91 (0) 98208 65684
Email: rachna.nath@in.pwc.com
PricewaterhouseCoopers Private Limited
252 Veer Savarkar Marg, Shivaji Park, Dadar (West)
Mumbai 400 028
38 PwC
www.pwc.com/india
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Building warehousing competitiveness 39