In this blog, I would like to take the case of India to drive home the point that the current approach of driving down Only the transportation costs is not the most optimal way to reduce the overall costs of supply chain. Even after the advent of technologies such as bidding software and platform , the focus is mostly and sometimes merely on reducing the transport costs by the logistics teams. I will also discuss how the trap can be broken with the adoption of right technological tools and create substantial value in the entire supply chain.

It is widely quoted that logistics costs in India are among the highest in the world for comparable 6economies. The costs stand at 13% of GDP and are more than USD 300 billion per year. The major costs are transportation, inventory and documentation costs. To reduce the costs, most of the discussion are focused on improving infrastructure and policy which is expensive and beyond control of individual companies. Rarely it is discussed, let alone quantified, that to what extent value can be created by deploying technology.

As per the calculation done by our consulting arm Kitzo Insights ( Kitzoinsights.com), logistics industry in India could have saved almost USD 40 Billion ( INR 2.8 Trillion ) in 2018. The value potential is likely to rise to USD 55 billion at current prices by 2025. The value proposition becomes even more compelling since it does not rely on external factors such as government interventions and investments.

The value creation opportunity on account of integrated view on transportation can be further divided majorly into pure transportation costs (optimized loading, better turnaround and price discovery) , inventory costs ( in-transit , stock etc. )  and warehousing ( less storage and damage ) .

It may be noted that each of the aforementioned areas are being optimized by professional organizations albeit manually. The manual processes make the optimization prone to human errors and rely on the expertise of human operator. For example, loading of vehicle is optimized by the loading supervisor who deploys his experience to decide loading of each vehicle. The process is time consuming and variability can be very high.

Similar problems exist in the other part of value chain  such as vehicle indentation, vehicle in-plant movement, vehicle loading , vehicle out-plant movement , delivery of cargo, invoicing and payments. In addition the siloed documentation at each stage adds to the complexity and high costs. The documentation costs has already been aggravated in India with the introduction of e-way bill.

So, what could be the solution? The answer is look for technological tools which integrate the entire chain in an automated way. The whole process can be viewed at a broad level as a combination of the following principal components:

  • Dispatch Plan
  • Identification of types and number of vehicles
  • Vehicle indentation
  • Vehicle in-plant and out-plant processes including documentation
  • Delivery
  • Invoicing
  • Payments

Note : The chain looks slightly different for Part Truck Loads ( PTL) .

The technological solution should be able to integrate and automate all the processes in ways which remove human intervention but are easily understood by even a layman.

However, the major problem for the companies is that developing the kind of technological platform is only  possible for large players. Even for these players constant maintenance and upgrades can be cumbersome and take away the managerial attention to non-core areas.

For the small or medium sized players, deployment of such a tool is very costly and risky due to upfront investment and recurring operational costs.

Fortunately, TransportHub.com which is one such  SaaS platform caters to the needs of transportation industry and reduce overall costs. TransportHub.com deploys state-of-the-art technology to integrate the various elements of value chain in a seamless way. The platform can easily be coupled with IoT devices and ERP software of the companies to enhance the benefits by a magnitude. The  platform can be used easily by launching  the app called  TOP . The app is available both on IOS and Android platform and powered by Machine Learning . A broad schematic of the platform is presented as below :

SCHEMATIC DIAGRAM

 

The logistics costs in India can be reduced by more than 10% even without government support such as better infrastructure and policies. Modern technology can be utilized to enhance automation and reduce human intervention to drive up optimization . The problem of high costs may be addressed by adoption of SaaS platform which does away with the problem of large upfront investment and constant need to design, deploy, upgrade and maintained in-house software.

 

Contact us :

Rohit Chaturvedi
partner@kitzoadvisory.com