Description
It also presents the SWOT analysis of India's SCM sector
SCM in India
-Industry Overview, Growth Drivers and Opportunities
1
GLOBAL
Overview
• Industry Overview
• Growth Drivers
• Segmentation – Industry verticals and SCM Horizontals
2
2
GLOBAL SCM is one of the biggest industry in the world
Overview
? Global SCM was valued at US $3.43tn in 2005. ? USA ? SCM industry size in the US is around $1,100 billion ? It is about 9 per cent of the US GDP ? There are about 4,500 Third-Party SCM service providers in the USA. ? UK ? SCM is the UK’s fifth biggest industry worth $103 billion ? It employs approximately 1.7 million people spanning some 65,000 companies ? APAC ? Japan contributes to about 31% of APAC SCM Market
3
3
India’s SCM Costs is about 13% of its GDP and is one of the highest in the world
COSTS
0
SCM Costs as a % of GDP
10 20
India
China
Japan
US
Europe
Source: Cygnus Industry Report, 2005
4
Transportation and Warehousing constitutes 66% of INR 4.5 Trillion and 56% of Transportation is done through Road
SEGMENTATION
Transportation modes SCM Components (in %)
Admn
2400
0.9
1.4 578
6
4 39
Transportation
1900
1364 667 474 1075 1560 Air Sea Rail Road
24 27
Warehousing Inventory Carrying Costs Order Processing
1400
900
400 2001 2006
Transportation volumes in million tonnes Source : KPMG Report “ Skill Gaps in the Indian SCM Sector” 5
The Logistics Market in India is dominated by Road Transportation
ROAD TRANSPORTATION
? India has the second largest road network in the world with length of roads being
? National Highways account for 2% of India's road network, and carry over 40% of
? Commercial vehicles in India run at average speeds of 20 mph, compared to over
? Road freight industry is likely to grow at a CAGR of 9.9% from 2007-08 to 2011-
India Snapshot
3.34m at the end of 2006[1]
the freight
60 mph in Western Europe and the United States[1]
12[2]
6
6
Indian Railways, one of the largest railway networks in the world, has 63,465 route kms.
RAIL TRANSPORTATION
? Freight earnings of IR increased from INR 363 bn in FY06 to INR
India Snapshot
423 bn in FY07 (increase of 16%)
? IR has set an aggressive target of 785 mn tonnes of freight loading
for the next financial year (FY08)
? Targeting volumes of 200 mn tonnes each from steel and cement
by 2011-12
7
7
SCM Industry is highly fragmented with 90% cos. owning less than 2 trucks and having turnover of less than INR 1 Crore
FRAGMENTATION
Truck Ownership Turnover Distribution
7% 4%
9%
> 10 Trucks
2%
< 1 Crore
3 - 10 Trucks
15%
2 Trucks
1 - 10 Crore
74%
1 Truck
89%
> 10 Crore
Source : KPMG Report “ Skill Gaps in the Indian SCM Sector”
8
Most of the SCM activities in India are performed inhouse and 3PL penetration is less than 10%
LEVEL OF OUTSOURCING
SCM Revenues in Billion Euros
Country
100
% of SCM activities done by 3 PL
80 60 40 20 0 2006 2007
India & China
20 23 28 35 43
< 10% 55 - 60% 80% 30 - 40%
US
50 53 58
60
Japan
62
Europe
2008 2009 2010
In-House
Outsourced
Source : Data Monitor Report on SCM, 2007
9
SCM MARKET DEVELOPMENT High
Indian SCM sector is at the lower end of the evolution stage compared to Asian markets
• Modern Infrastructure • Medium IT penetration • Lower levels of Integration
Taiwan Malaysia
Country Development Index
• Poor Facilities and Infrastructure •Low IT penetration • Limited Industry Partners •Shortage of quality labor
Hong kong
Singapore Japan
Philipines China
India Vietnam Cambodia Laos
• Excellent Infrastructure • Sophisticated capabilities and technology • Easier to attract quality labor • Higher levels of integration
Low
SCM Market Development
10
High
Bottlenecks in India’s SCM sector: Multiple Taxes and Scattered Warehouses
• Till recently, Indian states followed a system wherein sales tax was levied on intrastate sales along with a 4% CST on inter-state sales • Under the multi-tier system, manufacturers would set up their own warehouses or depots in each state to avoid paying CST on inter-state sales • With this corporates ended up with multiple warehouses, which lead to higher inventories • Multiple warehouses also increases logistics costs for corporates
Poor Infrastructure
• Indian infrastructure has been unable to keep pace with economic growth in the country. This has created bottlenecks across all segments of transportation including roads, railways, seaports, etc which led to: ? Longer Transit Time ? Higher Costs ? Inefficient Logistics Solutions • Poor infrastructure facilities prevent logistics service providers from offering effective 3PL solutions to clients
11
Bottlenecks in India’s SCM sector: Lack of 3PL solutions
• With a multi-tier system as also infrastructure bottlenecks, third party logistics (3PL) services offered limited benefits to users • There were just a few players offering 3 PL solutions in order to reduce the total logistics cost for corporates • 3 PL market remained a small market with slower growth rates
Shortage of skilled manpower
• • • • Very few professionals in SCM/Logistics Level of education is very low Poor image/lack of attractiveness for new recruits arising from poor working conditions Absence of institutionalized skill development
Low Penetration of Technologies
• Since the industry is fragmented and composed of small players with low level of education, little or no investment in technology in SCM 12
Port turnaround time in India is 12 times that of Singapore and Hongkong
BOTTLENECKS:
TURNAROUND TIME AT PORTS (IN HOURS)
7
Singapore
Hongkong
7
India
84
Source: G. Vaidyanathan,(JNPT), ICS World Bank, Cygnus, KPMG Analysis
13
Average distance covered by Road in India is 250-300 KMs per day
BOTTLENECKS: AVERAGE ROAD DISTANCE COVERED PER DAY (Km)
USA
1000-1200
Europe
800-1000
India
250-300
14
Vocationally trained workforce in logistics is very negligible in India
BOTTLENECKS: PROPORTION OF VOCATIONALLY TRAINED WORK-FORCE (in %)
Korea
90 85 75 25
Japan
Germany
Mexico
India
3
Source: ILO (2003)
15
GLOBAL
Overview
? Industry Overview
• Growth Drivers
• Segmentation – Industry verticals and SCM Horizontals
16
16
OPPORTUNITIES AND KEY GROWTH DRIVERS
17
17
OPPORTUNITIES AND KEY GROWTH DRIVERS GDP and EXIM Growth
• India’s GDP has been growing at the rate of 8-9% for the past 3-4 years. It is expected to average between 7.5 to 8% for the next 5 years. This is the 2nd fastest growth rate in the world by a major economy in the world. • During 2000-08, India’s exports have seen a quantum jump with CAGR of about 18-20% mainly contributed by growth in manufacturing , automotive and textile sectors. • Imports have also surged with a CAGR of about 22-24% during 2000-06. • Volumes being handled increased manifold. Requirement for transportation, handling and warehousing is growing at a robust pace and is driving demand for logistics solutions
Infrastructure Growth
Huge investments (Rs. 8,618 bn) are committed between 2006- 2011 towards improving India’s infrastructure. For example; ?Golden Quadrilateral – 5,846 kms ? NSEW corridor – 7,300 kms ? Port Connectivity – 400 kms ? Other NHDP projects – 10,000 kms ?
18
OPPORTUNITIES AND KEY GROWTH DRIVERS Infrastructure Growth
?Better infrastructure facilities would enhance the cost-effectiveness of integrated logistics solutions. ?Logistics service providers can utilize their economies of scale, complemented with better infrastructure, to provide more cost-effective solutions to companies.
CST Phase out
? Central government is committed to reducing central sales tax to zero by FY 10 ? As a first step in this direction, the government is likely to reduce CST to 2% from April 2007 ? After CST phase out, manufacturers will not require to set up own warehouses and depots in all states. ? Manufacturers can operate on a hub –and-spoke mechanism, under which companies can have large regional warehouses that can supply cargo to different states in the region. ? There will be a substantial rise in demand for integrated logistics solutions over the next five years
19
OPPORTUNITIES AND KEY GROWTH DRIVERS
Pressure to reduce costs
? With escalating competition across businesses, companies are forced to reduce their costs in order to remain profitable. ? Along with transportation, warehousing, handling and inventory, there will be outsourcing of functions like order management, despatch planning and SCM MIS. ? Cost pressure will drive corporates to outsource their logistics requirements to integrated service providers.
Increased presence of MNCs in India
? Growing number of multinational companies are setting up base in India to tap the domestic demand as well as make their India operations a sourcing hub for global requirements. ? Globally, MNCs outsource their entire logistics requirement from 3PL service providers – a
model they are more likely to adopt in India.
? This is expected to benefit integrated logistics service providers. 20
OPPORTUNITIES AND KEY GROWTH DRIVERS
Investment Scenario
? SCM sector which has largely been under-rated amongst all other sectors is seeing a large amount of interest from the Private Equity (PE) funds ? Large number of companies have been looking for opportunities to pick up stakes in logistics companies
Recent Investment by PEs
PE ICICI PE Fund II Blackstone Old Lane Opportunities Funds Temasek Holdings Erdene Capital PLC Investment (Rs. Mn) 1100 2420 1070 1000 854 21 Target Firm Sical Logistics Allcargo movers Sical Logistics First Flight couriers ltd MJ Logistics
OPPORTUNITIES AND GROWTH DRIVERS (CONTD…)
FY 06
6%
94% Organized SCM industry
Movement from unorganized to organized supply chain providers
growth – 25% Unorganized SCM industry growth – 8%
Organized
FY 11
14%
Unorganized
86%
Source : SSKI Report on SCM
22
OPPORTUNITIES AND KEY GROWTH DRIVERS (CONTD…)
• Companies would increasingly outsource their SCM activities as: ?Outsourcing of SCM functions aid corporates in maintaining focus on their core business and reduce manufacture requirement. ?Supply chain costs reduce considerably if outsourced to integrated SCM service provider ?Integrated SCM service providers have solutions spanning order compilation, despatch planning, physical transportation, in-transit monitoring, confirmation of deliveries, payment to transporters and providing MIS to corporates.
Increase in level of Outsourcing to derive efficiencies
23
BENEFITS OF SCM OUTSOURCING Cost Savings Focus on Core Competencies
Benefits of Outsourcing SCM solutions
Lower Working Capital Requirements
24
Value Added Services
Companies that have outsourced their SCM functions have derived significant improvement in their operations
OPPORTUNITIES AND KEY GROWTH DRIVERS (CONTD…) Benefits of Outsourcing - Examples
Company Parameter Before Outsourcing After Outsourcing 7
Godrej Industries
Inventory at Distributor end (Days) Operating Costs (Rs.)
30
1.7m – 1.8 mn per month
0.7 – 0.8mn per month 92 6.4 15 9 22
Corbarundum Universal
Product Availability (%) Distribution Costs (%) Distributor Stock-outs (%)
64 8 30 21 29
Marico
Stock-outs at Marico (%) Inventory at Marico (no. of days)
Source : SSKI Report on SCM
25
SWOC Analysis of India’s SCM sector
26
GLOBAL
Overview
? Industry Overview
? Growth Drivers
• Segmentation – Industry verticals and SCM Horizontals
27
27
Auto components, FMCG and IT components constitute 75% of SCM demand in North Zone
SCM DEMAND (NORTH ZONE)
26%
Auto Components Pharma 32% FMCG
6% 4% 18%
Note:
Cement Textiles 14% IT Components
Source: Knight & Frank Newmark Global, Industry Report 2008
28 1. :This is only for select industries which do not include sectors like chemicals, fuel, agricultural commodities
Auto components, FMCG and Textiles constitute 65% of SCM demand in West Zone
SCM DEMAND (WEST ZONE)
13% 32% 14%
Auto Components Pharma FMCG Cement
8% 20% 13%
Textiles IT Components
Source: Knight & Frank Newmark Global, Industry Report 2008
Note:
1. :This is only for select industries which do not include sectors like chemicals, fuel, agricultural commodities
29
Auto components, Pharma and FMCG constitute 70% of SCM demand in South Zone
SCM DEMAND (South ZONE)
10% 11% 9% 35%
Auto Components Pharma FMCG Cement Textiles 20% IT Components
15%
Note:
Source: Knight & Frank Newmark Global, Industry Report 2008
1. :This is only for select industries which do not include sectors like chemicals, fuel, agricultural commodities
30
Steel, FMCG and Auto components constitute 70% of SCM demand in East Zone
SCM DEMAND (EAST ZONE)
Steel Food Products Electronic Goods Textile / Apparel Auto components Petrochemicals FMCG
13% 9% 44% 11% 7% 6%
Note:
8%
Source: Knight & Frank Newmark Global, Industry Report 2008
1. :This is only for select industries which do not include sectors like chemicals, fuel, agricultural commodities
31
Certain SCM service areas will grow significantly higher than others between 2008-2013
EXPECTED GROWTH RATES OF KEY SCM SERVICES
Average GDP Growth Horizontals Trucking Rail Shipping Road Express Air Express & Courier Freight Forwarding Integrated 3 PL Outsourced Warehousing Value Added Services Reverse SCM Cold Storage Temperature Controlled Transportation 5-10% more than GDP growth 15-20% more than GDP growth
Expected Growth between 2008-13
32
Margins vary across SCM spectrum – Integrated services will command higher margins than individual services
By Vertical
Margin Analysis
By Level of Integration
Vertical
Segment Conventional Express & Courier Temperature Controlled
Margins Low Medium High Medium Low High High Medium Medium By selling individual services By selling integrated services
Low
Transportation
Containerized Standard Cold Storage ICO / CFS Break - Bulk
High
Warehousing Value Added Services Emerging Business
Freight Consolidation
Order Management
CHA Educational Training Urban Transportation
High
Medium High High
33
Margins move up as players move up the value chain
MARGIN ANALYSIS OF KEY SCM HORIZONTALS
•Solution providers dealing with all SCM requirements of the company across the country •Earn superior margins due to integrated services •To be the key beneficiaries of the increased SCM solutions by corporates 3 PL
Better Margins
Regional Players
•Players providing SCM services in a particular region or segment (port based, road based etc) •Lose out to nationally integrated players due to lack of geographical reach •Cater to a particular segment in the entire value chain across the country (Bulk Truck Transporters) •Unable to provide end-to-end SCM solutions •Local / inter-city operators. •Focus on single location limits the extent of value adding ability •High competitive intensity leads to low profitability
Niche players, high value addition in particular segment Single Location, single Horizontal
34
Network, Technology, Warehousing facilities and integrated services will be the critical successful factors for growth
CRITICAL SUCCESS FACTORS FOR GROWTH
• Network will be the backbone for growth • SCM companies will be required either to own or hire extensive distribution networks to provide door-to-door delivery coupled with cost effective solutions • Extensive delivery network enables a SCM player to court a wider clientele along with superior margins • Key differentiator for growth • Equip SCM companies with the ability to improve their operating efficiencies in the form of higher utilization of assets (like truck fleets), coordination of cargo movements • Provide significant value addition to clients, gives competitive edge to both the users and SCM service providers
35
Network
Technology
Network, Technology, Warehousing facilities and integrated services will be the critical successful factors for growth
CRITICAL SUCCESS FACTORS FOR GROWTH (CONTD…)
• SCM services company is required to have warehousing facilities to provide value added services • Role of a warehouse is changing from a conventional inventory storehouse to “sort and merge” facilities, wherein quite a few activities like consolidation, bar coding, sorting packing, etc take place • It reduces the caped requirement for clients and significant revenue stream of organized SCM players
Warehousing Facilities
Integrated Services
• Increasingly clients will prefer to subcontract the entire SCM requirement to a single player • Organized service providers offering a one-stop shop solution for a client’s entire SCM requirements will be the main beneficiaries of the growing SCM market
36
37
doc_862339032.pptx
It also presents the SWOT analysis of India's SCM sector
SCM in India
-Industry Overview, Growth Drivers and Opportunities
1
GLOBAL
Overview
• Industry Overview
• Growth Drivers
• Segmentation – Industry verticals and SCM Horizontals
2
2
GLOBAL SCM is one of the biggest industry in the world
Overview
? Global SCM was valued at US $3.43tn in 2005. ? USA ? SCM industry size in the US is around $1,100 billion ? It is about 9 per cent of the US GDP ? There are about 4,500 Third-Party SCM service providers in the USA. ? UK ? SCM is the UK’s fifth biggest industry worth $103 billion ? It employs approximately 1.7 million people spanning some 65,000 companies ? APAC ? Japan contributes to about 31% of APAC SCM Market
3
3
India’s SCM Costs is about 13% of its GDP and is one of the highest in the world
COSTS
0
SCM Costs as a % of GDP
10 20
India
China
Japan
US
Europe
Source: Cygnus Industry Report, 2005
4
Transportation and Warehousing constitutes 66% of INR 4.5 Trillion and 56% of Transportation is done through Road
SEGMENTATION
Transportation modes SCM Components (in %)
Admn
2400
0.9
1.4 578
6
4 39
Transportation
1900
1364 667 474 1075 1560 Air Sea Rail Road
24 27
Warehousing Inventory Carrying Costs Order Processing
1400
900
400 2001 2006
Transportation volumes in million tonnes Source : KPMG Report “ Skill Gaps in the Indian SCM Sector” 5
The Logistics Market in India is dominated by Road Transportation
ROAD TRANSPORTATION
? India has the second largest road network in the world with length of roads being
? National Highways account for 2% of India's road network, and carry over 40% of
? Commercial vehicles in India run at average speeds of 20 mph, compared to over
? Road freight industry is likely to grow at a CAGR of 9.9% from 2007-08 to 2011-
India Snapshot
3.34m at the end of 2006[1]
the freight
60 mph in Western Europe and the United States[1]
12[2]
6
6
Indian Railways, one of the largest railway networks in the world, has 63,465 route kms.
RAIL TRANSPORTATION
? Freight earnings of IR increased from INR 363 bn in FY06 to INR
India Snapshot
423 bn in FY07 (increase of 16%)
? IR has set an aggressive target of 785 mn tonnes of freight loading
for the next financial year (FY08)
? Targeting volumes of 200 mn tonnes each from steel and cement
by 2011-12
7
7
SCM Industry is highly fragmented with 90% cos. owning less than 2 trucks and having turnover of less than INR 1 Crore
FRAGMENTATION
Truck Ownership Turnover Distribution
7% 4%
9%
> 10 Trucks
2%
< 1 Crore
3 - 10 Trucks
15%
2 Trucks
1 - 10 Crore
74%
1 Truck
89%
> 10 Crore
Source : KPMG Report “ Skill Gaps in the Indian SCM Sector”
8
Most of the SCM activities in India are performed inhouse and 3PL penetration is less than 10%
LEVEL OF OUTSOURCING
SCM Revenues in Billion Euros
Country
100
% of SCM activities done by 3 PL
80 60 40 20 0 2006 2007
India & China
20 23 28 35 43
< 10% 55 - 60% 80% 30 - 40%
US
50 53 58
60
Japan
62
Europe
2008 2009 2010
In-House
Outsourced
Source : Data Monitor Report on SCM, 2007
9
SCM MARKET DEVELOPMENT High
Indian SCM sector is at the lower end of the evolution stage compared to Asian markets
• Modern Infrastructure • Medium IT penetration • Lower levels of Integration
Taiwan Malaysia
Country Development Index
• Poor Facilities and Infrastructure •Low IT penetration • Limited Industry Partners •Shortage of quality labor
Hong kong
Singapore Japan
Philipines China
India Vietnam Cambodia Laos
• Excellent Infrastructure • Sophisticated capabilities and technology • Easier to attract quality labor • Higher levels of integration
Low
SCM Market Development
10
High
Bottlenecks in India’s SCM sector: Multiple Taxes and Scattered Warehouses
• Till recently, Indian states followed a system wherein sales tax was levied on intrastate sales along with a 4% CST on inter-state sales • Under the multi-tier system, manufacturers would set up their own warehouses or depots in each state to avoid paying CST on inter-state sales • With this corporates ended up with multiple warehouses, which lead to higher inventories • Multiple warehouses also increases logistics costs for corporates
Poor Infrastructure
• Indian infrastructure has been unable to keep pace with economic growth in the country. This has created bottlenecks across all segments of transportation including roads, railways, seaports, etc which led to: ? Longer Transit Time ? Higher Costs ? Inefficient Logistics Solutions • Poor infrastructure facilities prevent logistics service providers from offering effective 3PL solutions to clients
11
Bottlenecks in India’s SCM sector: Lack of 3PL solutions
• With a multi-tier system as also infrastructure bottlenecks, third party logistics (3PL) services offered limited benefits to users • There were just a few players offering 3 PL solutions in order to reduce the total logistics cost for corporates • 3 PL market remained a small market with slower growth rates
Shortage of skilled manpower
• • • • Very few professionals in SCM/Logistics Level of education is very low Poor image/lack of attractiveness for new recruits arising from poor working conditions Absence of institutionalized skill development
Low Penetration of Technologies
• Since the industry is fragmented and composed of small players with low level of education, little or no investment in technology in SCM 12
Port turnaround time in India is 12 times that of Singapore and Hongkong
BOTTLENECKS:
TURNAROUND TIME AT PORTS (IN HOURS)
7
Singapore
Hongkong
7
India
84
Source: G. Vaidyanathan,(JNPT), ICS World Bank, Cygnus, KPMG Analysis
13
Average distance covered by Road in India is 250-300 KMs per day
BOTTLENECKS: AVERAGE ROAD DISTANCE COVERED PER DAY (Km)
USA
1000-1200
Europe
800-1000
India
250-300
14
Vocationally trained workforce in logistics is very negligible in India
BOTTLENECKS: PROPORTION OF VOCATIONALLY TRAINED WORK-FORCE (in %)
Korea
90 85 75 25
Japan
Germany
Mexico
India
3
Source: ILO (2003)
15
GLOBAL
Overview
? Industry Overview
• Growth Drivers
• Segmentation – Industry verticals and SCM Horizontals
16
16
OPPORTUNITIES AND KEY GROWTH DRIVERS
17
17
OPPORTUNITIES AND KEY GROWTH DRIVERS GDP and EXIM Growth
• India’s GDP has been growing at the rate of 8-9% for the past 3-4 years. It is expected to average between 7.5 to 8% for the next 5 years. This is the 2nd fastest growth rate in the world by a major economy in the world. • During 2000-08, India’s exports have seen a quantum jump with CAGR of about 18-20% mainly contributed by growth in manufacturing , automotive and textile sectors. • Imports have also surged with a CAGR of about 22-24% during 2000-06. • Volumes being handled increased manifold. Requirement for transportation, handling and warehousing is growing at a robust pace and is driving demand for logistics solutions
Infrastructure Growth
Huge investments (Rs. 8,618 bn) are committed between 2006- 2011 towards improving India’s infrastructure. For example; ?Golden Quadrilateral – 5,846 kms ? NSEW corridor – 7,300 kms ? Port Connectivity – 400 kms ? Other NHDP projects – 10,000 kms ?
18
OPPORTUNITIES AND KEY GROWTH DRIVERS Infrastructure Growth
?Better infrastructure facilities would enhance the cost-effectiveness of integrated logistics solutions. ?Logistics service providers can utilize their economies of scale, complemented with better infrastructure, to provide more cost-effective solutions to companies.
CST Phase out
? Central government is committed to reducing central sales tax to zero by FY 10 ? As a first step in this direction, the government is likely to reduce CST to 2% from April 2007 ? After CST phase out, manufacturers will not require to set up own warehouses and depots in all states. ? Manufacturers can operate on a hub –and-spoke mechanism, under which companies can have large regional warehouses that can supply cargo to different states in the region. ? There will be a substantial rise in demand for integrated logistics solutions over the next five years
19
OPPORTUNITIES AND KEY GROWTH DRIVERS
Pressure to reduce costs
? With escalating competition across businesses, companies are forced to reduce their costs in order to remain profitable. ? Along with transportation, warehousing, handling and inventory, there will be outsourcing of functions like order management, despatch planning and SCM MIS. ? Cost pressure will drive corporates to outsource their logistics requirements to integrated service providers.
Increased presence of MNCs in India
? Growing number of multinational companies are setting up base in India to tap the domestic demand as well as make their India operations a sourcing hub for global requirements. ? Globally, MNCs outsource their entire logistics requirement from 3PL service providers – a
model they are more likely to adopt in India.
? This is expected to benefit integrated logistics service providers. 20
OPPORTUNITIES AND KEY GROWTH DRIVERS
Investment Scenario
? SCM sector which has largely been under-rated amongst all other sectors is seeing a large amount of interest from the Private Equity (PE) funds ? Large number of companies have been looking for opportunities to pick up stakes in logistics companies
Recent Investment by PEs
PE ICICI PE Fund II Blackstone Old Lane Opportunities Funds Temasek Holdings Erdene Capital PLC Investment (Rs. Mn) 1100 2420 1070 1000 854 21 Target Firm Sical Logistics Allcargo movers Sical Logistics First Flight couriers ltd MJ Logistics
OPPORTUNITIES AND GROWTH DRIVERS (CONTD…)
FY 06
6%
94% Organized SCM industry
Movement from unorganized to organized supply chain providers
growth – 25% Unorganized SCM industry growth – 8%
Organized
FY 11
14%
Unorganized
86%
Source : SSKI Report on SCM
22
OPPORTUNITIES AND KEY GROWTH DRIVERS (CONTD…)
• Companies would increasingly outsource their SCM activities as: ?Outsourcing of SCM functions aid corporates in maintaining focus on their core business and reduce manufacture requirement. ?Supply chain costs reduce considerably if outsourced to integrated SCM service provider ?Integrated SCM service providers have solutions spanning order compilation, despatch planning, physical transportation, in-transit monitoring, confirmation of deliveries, payment to transporters and providing MIS to corporates.
Increase in level of Outsourcing to derive efficiencies
23
BENEFITS OF SCM OUTSOURCING Cost Savings Focus on Core Competencies
Benefits of Outsourcing SCM solutions
Lower Working Capital Requirements
24
Value Added Services
Companies that have outsourced their SCM functions have derived significant improvement in their operations
OPPORTUNITIES AND KEY GROWTH DRIVERS (CONTD…) Benefits of Outsourcing - Examples
Company Parameter Before Outsourcing After Outsourcing 7
Godrej Industries
Inventory at Distributor end (Days) Operating Costs (Rs.)
30
1.7m – 1.8 mn per month
0.7 – 0.8mn per month 92 6.4 15 9 22
Corbarundum Universal
Product Availability (%) Distribution Costs (%) Distributor Stock-outs (%)
64 8 30 21 29
Marico
Stock-outs at Marico (%) Inventory at Marico (no. of days)
Source : SSKI Report on SCM
25
SWOC Analysis of India’s SCM sector
26
GLOBAL
Overview
? Industry Overview
? Growth Drivers
• Segmentation – Industry verticals and SCM Horizontals
27
27
Auto components, FMCG and IT components constitute 75% of SCM demand in North Zone
SCM DEMAND (NORTH ZONE)
26%
Auto Components Pharma 32% FMCG
6% 4% 18%
Note:
Cement Textiles 14% IT Components
Source: Knight & Frank Newmark Global, Industry Report 2008
28 1. :This is only for select industries which do not include sectors like chemicals, fuel, agricultural commodities
Auto components, FMCG and Textiles constitute 65% of SCM demand in West Zone
SCM DEMAND (WEST ZONE)
13% 32% 14%
Auto Components Pharma FMCG Cement
8% 20% 13%
Textiles IT Components
Source: Knight & Frank Newmark Global, Industry Report 2008
Note:
1. :This is only for select industries which do not include sectors like chemicals, fuel, agricultural commodities
29
Auto components, Pharma and FMCG constitute 70% of SCM demand in South Zone
SCM DEMAND (South ZONE)
10% 11% 9% 35%
Auto Components Pharma FMCG Cement Textiles 20% IT Components
15%
Note:
Source: Knight & Frank Newmark Global, Industry Report 2008
1. :This is only for select industries which do not include sectors like chemicals, fuel, agricultural commodities
30
Steel, FMCG and Auto components constitute 70% of SCM demand in East Zone
SCM DEMAND (EAST ZONE)
Steel Food Products Electronic Goods Textile / Apparel Auto components Petrochemicals FMCG
13% 9% 44% 11% 7% 6%
Note:
8%
Source: Knight & Frank Newmark Global, Industry Report 2008
1. :This is only for select industries which do not include sectors like chemicals, fuel, agricultural commodities
31
Certain SCM service areas will grow significantly higher than others between 2008-2013
EXPECTED GROWTH RATES OF KEY SCM SERVICES
Average GDP Growth Horizontals Trucking Rail Shipping Road Express Air Express & Courier Freight Forwarding Integrated 3 PL Outsourced Warehousing Value Added Services Reverse SCM Cold Storage Temperature Controlled Transportation 5-10% more than GDP growth 15-20% more than GDP growth
Expected Growth between 2008-13
32
Margins vary across SCM spectrum – Integrated services will command higher margins than individual services
By Vertical
Margin Analysis
By Level of Integration
Vertical
Segment Conventional Express & Courier Temperature Controlled
Margins Low Medium High Medium Low High High Medium Medium By selling individual services By selling integrated services
Low
Transportation
Containerized Standard Cold Storage ICO / CFS Break - Bulk
High
Warehousing Value Added Services Emerging Business
Freight Consolidation
Order Management
CHA Educational Training Urban Transportation
High
Medium High High
33
Margins move up as players move up the value chain
MARGIN ANALYSIS OF KEY SCM HORIZONTALS
•Solution providers dealing with all SCM requirements of the company across the country •Earn superior margins due to integrated services •To be the key beneficiaries of the increased SCM solutions by corporates 3 PL
Better Margins
Regional Players
•Players providing SCM services in a particular region or segment (port based, road based etc) •Lose out to nationally integrated players due to lack of geographical reach •Cater to a particular segment in the entire value chain across the country (Bulk Truck Transporters) •Unable to provide end-to-end SCM solutions •Local / inter-city operators. •Focus on single location limits the extent of value adding ability •High competitive intensity leads to low profitability
Niche players, high value addition in particular segment Single Location, single Horizontal
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Network, Technology, Warehousing facilities and integrated services will be the critical successful factors for growth
CRITICAL SUCCESS FACTORS FOR GROWTH
• Network will be the backbone for growth • SCM companies will be required either to own or hire extensive distribution networks to provide door-to-door delivery coupled with cost effective solutions • Extensive delivery network enables a SCM player to court a wider clientele along with superior margins • Key differentiator for growth • Equip SCM companies with the ability to improve their operating efficiencies in the form of higher utilization of assets (like truck fleets), coordination of cargo movements • Provide significant value addition to clients, gives competitive edge to both the users and SCM service providers
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Network
Technology
Network, Technology, Warehousing facilities and integrated services will be the critical successful factors for growth
CRITICAL SUCCESS FACTORS FOR GROWTH (CONTD…)
• SCM services company is required to have warehousing facilities to provide value added services • Role of a warehouse is changing from a conventional inventory storehouse to “sort and merge” facilities, wherein quite a few activities like consolidation, bar coding, sorting packing, etc take place • It reduces the caped requirement for clients and significant revenue stream of organized SCM players
Warehousing Facilities
Integrated Services
• Increasingly clients will prefer to subcontract the entire SCM requirement to a single player • Organized service providers offering a one-stop shop solution for a client’s entire SCM requirements will be the main beneficiaries of the growing SCM market
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