When I started this blog, I had mentioned about how trucking function operates in silos in most firms in India. With diesel price deregulation, now the base freight for trucking has moved to almost 14 rupees per MT per KM going all the way to 40 rupees per MT per KM for project cargo and cold chain transportation.
India comes within the top 10 countries in the world for road transportation networks given the sheer length and breadth of the country. The challenges are compounded by the multiple warehouse setup to cater to the multi-layered tax regime. Freight procurement therefore remains one of the biggest challenges for logistics managers on both manufacturing ends and service provider ends.
IT is one of the key enablers to help bring more productivity and efficiency into this complex maze of activities. With cloud computing and proliferation of GPS in hardware and Software as Service engagement model in software, the scope for optimizing trucking costs / lead times is tremendous.
We all know about how scale brings in economies due to volumes. One major evolving trend will be demand / supply pooling. The basic concept is similar to that of car pooling that working professionals in general talk about. The first movers in this space will stand to gain tremendously in the long run. Just as in the case of multi-user warehousing facility, there is ample scope for aggregating trucking requirements on a multi-client basis.
The basic model is very simple
1 - Identify specific clients that have intense trucking needs
2 - Procure trucking freight in bulk across high density traffic sectors on round-trip basis
3 - Engage with the trucking service provider to ensure GPS adoption takes place
Start aggregating various client volumes on the first leg to ensure truck positioning happens as per client desired outbound schedules. Simultaneously ensure that demand for the truck's return haul is pooled at the other end. Why will this model have multiple benefits
A] It helps procurement of freight in bulk, thereby lowering trucking costs
B] It helps trucking firms minimize idle time between each haul and ensure optimal utilization of the asset i.e. the truck
C] It ensures a supply chain network that is actively engaged as per the factories' loading schedules
Given that majority of India's trucking fleet operates in the 9MT to 12MT load capacity and the fact that a truck moves an average 600-700 kms per day for long hauls, there is tremendous dead weight loss caused by fragmented ownership of fleets. The average truck manages about 100 days of utilization due to this fragmented nature. Taking a transit time of 2 days for an average haul of 1200 kms, it still leaves about 1/3rd time un-utilized for the trucker [fixed cost of which is transmitted to the end users]
The fragmented network still brings challenges to manufacturing firms as the production lines are optimized but lead times / inventories are raised because of the uncertainty in lead time to simply 'position the truck' for the load.
The GPS adoption will provide visibility of availability of fleet on real-time basis and adopters of the 'aggregated demand' model will get trucks positioned as per their schedules, thereby reducing 'positioning lead time' and a reduction of safety inventory holding
The trucking companies benefit from greater asset utilization with assured loads and perhaps the dead weight loss can be dropped to as low as 40-50 days per truck per annum. The benefits of this can be straight away transmitted to the end users of services without any erosion of margins for the trucking service provider [or perhaps even margin enhancement due to asset utilization]
So far so good and the concept seems like a no brainer quick win solution for trucking intensive operations. If only ground realities were as simple as they seem on paper............and that too in the Indian market!!!!
First and foremost, implementation of this model needs a very strong collaborative approach between truckers / trucking companies. Most often than not, due to the low education and awareness levels of drivers, adoption of GPS technology itself is a major challenge. They need to explained in their own language that the GPS model is not to police them but to ensure better utilization of their prized asset i.e. the truck. The trucking companies need to be made aware that whilst this model may seemingly reduce marginal profit per haul, the volume benefits over a period of time will actually increase profitability due to higher asset utilization
Most important, manufacturing firms will always be vary about sensitive information getting leaked out due to the shared model and / or the cargo variance leading to materials management challenges for their specific product. Indeed these are valid constraints and that is where the role of IT will be very handy. Logistics Service Providers need to build those engagements in a very sensitive manner so that data security is not compromised upon. Also manufacturing firms need to remember that shared utilization is so common in the international air-freight and sea freight portions of transportation. So they should not be too worried about the multi-user model on the trucking front.
As far as constraints with materials management are concerned, today there are adequate technologies in place to ensure that system checks are built in while allocation of trucks for loading [it is obviously known that food-grade equipment should not be mixed with dangerous goods loads and that napthalene carriers should not be utilized for transportation of garments] All such constraints can be built into the trucking system by the logistics service providers.
In my personal opinion, this model is the one that will actually kick off big time in the Indian industry and the greater the utilization of this model, greater will be the reduction in logistics costs and lower administrative head aches for freight procurement functions. This model is all about 'Doing More with Less' that is spoken by many firms; implemented by only a handful few. This model also will bring in a lot of organized fashion in the trucking industry and not to forget significant savings on the bottom-line
PS: Some of the leading Fortune 500 Indian companies are already utilizing this model that is ensuring that end-product cost is maintained constant despite hyperinflationary trends [and yes they are multi-nationals in the consumption space] It is the turn of core Indian manufacturing firms to step up the ante against hyperinflationary freight component in Indian trucking space........
Illustration of Pooling Demand / Supply Model
In the next article, I will discuss the potential opportunities to lock in fuel costs for the year regardless of market fluctuations of fuel costs
India comes within the top 10 countries in the world for road transportation networks given the sheer length and breadth of the country. The challenges are compounded by the multiple warehouse setup to cater to the multi-layered tax regime. Freight procurement therefore remains one of the biggest challenges for logistics managers on both manufacturing ends and service provider ends.
IT is one of the key enablers to help bring more productivity and efficiency into this complex maze of activities. With cloud computing and proliferation of GPS in hardware and Software as Service engagement model in software, the scope for optimizing trucking costs / lead times is tremendous.
We all know about how scale brings in economies due to volumes. One major evolving trend will be demand / supply pooling. The basic concept is similar to that of car pooling that working professionals in general talk about. The first movers in this space will stand to gain tremendously in the long run. Just as in the case of multi-user warehousing facility, there is ample scope for aggregating trucking requirements on a multi-client basis.
The basic model is very simple
1 - Identify specific clients that have intense trucking needs
2 - Procure trucking freight in bulk across high density traffic sectors on round-trip basis
3 - Engage with the trucking service provider to ensure GPS adoption takes place
Start aggregating various client volumes on the first leg to ensure truck positioning happens as per client desired outbound schedules. Simultaneously ensure that demand for the truck's return haul is pooled at the other end. Why will this model have multiple benefits
A] It helps procurement of freight in bulk, thereby lowering trucking costs
B] It helps trucking firms minimize idle time between each haul and ensure optimal utilization of the asset i.e. the truck
C] It ensures a supply chain network that is actively engaged as per the factories' loading schedules
Given that majority of India's trucking fleet operates in the 9MT to 12MT load capacity and the fact that a truck moves an average 600-700 kms per day for long hauls, there is tremendous dead weight loss caused by fragmented ownership of fleets. The average truck manages about 100 days of utilization due to this fragmented nature. Taking a transit time of 2 days for an average haul of 1200 kms, it still leaves about 1/3rd time un-utilized for the trucker [fixed cost of which is transmitted to the end users]
The fragmented network still brings challenges to manufacturing firms as the production lines are optimized but lead times / inventories are raised because of the uncertainty in lead time to simply 'position the truck' for the load.
The GPS adoption will provide visibility of availability of fleet on real-time basis and adopters of the 'aggregated demand' model will get trucks positioned as per their schedules, thereby reducing 'positioning lead time' and a reduction of safety inventory holding
The trucking companies benefit from greater asset utilization with assured loads and perhaps the dead weight loss can be dropped to as low as 40-50 days per truck per annum. The benefits of this can be straight away transmitted to the end users of services without any erosion of margins for the trucking service provider [or perhaps even margin enhancement due to asset utilization]
So far so good and the concept seems like a no brainer quick win solution for trucking intensive operations. If only ground realities were as simple as they seem on paper............and that too in the Indian market!!!!
First and foremost, implementation of this model needs a very strong collaborative approach between truckers / trucking companies. Most often than not, due to the low education and awareness levels of drivers, adoption of GPS technology itself is a major challenge. They need to explained in their own language that the GPS model is not to police them but to ensure better utilization of their prized asset i.e. the truck. The trucking companies need to be made aware that whilst this model may seemingly reduce marginal profit per haul, the volume benefits over a period of time will actually increase profitability due to higher asset utilization
Most important, manufacturing firms will always be vary about sensitive information getting leaked out due to the shared model and / or the cargo variance leading to materials management challenges for their specific product. Indeed these are valid constraints and that is where the role of IT will be very handy. Logistics Service Providers need to build those engagements in a very sensitive manner so that data security is not compromised upon. Also manufacturing firms need to remember that shared utilization is so common in the international air-freight and sea freight portions of transportation. So they should not be too worried about the multi-user model on the trucking front.
As far as constraints with materials management are concerned, today there are adequate technologies in place to ensure that system checks are built in while allocation of trucks for loading [it is obviously known that food-grade equipment should not be mixed with dangerous goods loads and that napthalene carriers should not be utilized for transportation of garments] All such constraints can be built into the trucking system by the logistics service providers.
In my personal opinion, this model is the one that will actually kick off big time in the Indian industry and the greater the utilization of this model, greater will be the reduction in logistics costs and lower administrative head aches for freight procurement functions. This model is all about 'Doing More with Less' that is spoken by many firms; implemented by only a handful few. This model also will bring in a lot of organized fashion in the trucking industry and not to forget significant savings on the bottom-line
PS: Some of the leading Fortune 500 Indian companies are already utilizing this model that is ensuring that end-product cost is maintained constant despite hyperinflationary trends [and yes they are multi-nationals in the consumption space] It is the turn of core Indian manufacturing firms to step up the ante against hyperinflationary freight component in Indian trucking space........
Illustration of Pooling Demand / Supply Model
In the next article, I will discuss the potential opportunities to lock in fuel costs for the year regardless of market fluctuations of fuel costs
