To create value for their businesses, organizations need to focus on an effective supply chain strategy. An effective supply chain results in satisfying customers, streamlining costs, and supports growth and expansion into new target markets. Even though businesses have evolved and reached a point of sophistication where they have improved their supply chain maturity, they are far from reaching a stage of supply chain orchestration.
Levels of supply chain maturity
The first level involves individual processes and regions to be optimized such that efficiency and performance are in turn optimized. However, owing to the lack of integration and coordination between elements, the business does not benefit from interdependent business operations.
The second level sees crucial departments such as procurement, finance, and logistics working in sync with each other. And even though this integration is applied across geographies, it still leaves the customers and suppliers excluded.
The third level sees a convergence of information from multiple sources including customers and competitors, which gives rise to creating a unified network in an organization.
The last level is that of supply chain orchestration which leads to forming a single view of the customer. The ultimate goal of having standardization, scalability, and adaptability is seen coming to fruition at this stage.
Logistics industry overview
The global logistics industry is grappling between an evolutionary supply chain and a revolutionary supply chain. The main reason behind this has been identified in a PwC report as being the economic crisis that led to a contraction of the logistics industry in 2007-10. However, 2013 did bring along its share of stabilization and the future seems rather promising.
With an annual growth rate of 3.7% and more, the industry seems to be picking up speed and moving in the right direction. The pin to the bubble is that different geographies record and report different growth. Owing to the logistics industry being deeply affected by political, social, environmental, and economic changes the European market is well on its way to supply orchestration while the BRIC nations are trying to catch up.
India’s logistic industry was worth $110 billion in 2014 as per a JLL study and is well expected to cross $200 billion by 2020. What then are factors that are impeding this growth?
As a country, India has an unevenly distributed infrastructure network, which puts undue pressure on some of its components, while the rest remain underutilized and mostly underdeveloped. As per a report by India Brand Equity Foundation or IBEF, Indian logistic industry continues to grow at a CAGR of over 16 percent for the last five years. Aggregate freight traffic can be estimated to be around 2-2.3 trillion ton kilometers, says the report. Further to that, though freight bookings are made for air and waterways, 60% of the freight is transported by roads and about 32% by rail.
Unorganized and ambiguous price policies
The price policies that most freight shipping companies have to follow are ambiguous and unstructured. There are several factors that affect the price in this industry.
- Market Share
There is a limited market share that a freight booking agency operates out of, which is mostly restricted to two to three cities. They prefer to only to procure an order where a consignee is in one of these cities as it reduces the opportunity cost of the transporter. As a result, the transporters are able to charge a lesser price in comparison to what they may charge for a destination not under their operational parameter.
- Cost undetermination
The information available with truck for load companies is insufficient to determine the cost of transportation with certainty. Factors like toll charge, which amount to 30% of the cost, remain unknown for various routes. Varied malpractices also decrease the probability of arriving at a certain result. Even though a lot of information is present on the internet, a lack of technological understanding prohibits operators from accessing it.
- Hidden Costs
A lot of time is lost during the process of loading and unloading truck for loads. Industries generally maintain a 40% capacity of daily production on stations for loading and unloading. So, if an industry would require 10 trucks a day, it is generally able to load/unload only four trucks at a time. As most of the loading takes place during the first half of the day, trucks generally have to queue for two to six hours on average before entering loading, which again can vary anywhere from one to three hours per truck. Therefore, almost six hours are utilized for loading for every trip. As a partner would want to make most of their time, the freight shipping company charges this cost ambiguously, without providing a detailed breakup, in most cases.
- No point of price validation
Unlike B2C markets, B2B markets don’t share their price publicly. This boosts companies to quote disparate prices, which leaves the market to become more uncertain.
Lack of ability to plan and manage
The control of the vehicles lies largely with the truck drivers, making them the virtual owners. Details of the online freight bookings are provided by the organization, however, due to lack of efficient communication, there is low reliability on the time of arrival or delivery. Resultantly, the arrival and loading of trucks cannot be planned. This results in increasing the inefficiency in this industry which increases the indirect costs having a direct result on the price.
No safeguarding of rights in case of malpractice
Freight shipping companies face a lot of bad debts and shippers fear protection of goods and timely delivery. Due to these reasons, there is low reliability and bottlenecks in the processes. Most of these losses are recovered by inflating the price for other customers.
Availability ill determination
Due to the lack of technology, the process to find out availability is long and cumbersome. The absence of an integrated network and online freight bookings worsen the situation. If technology were to be leveraged, all the above problems could be solved.
Pursuing end-to-end excellence
According to a McKinsey study, India bears an annual loss $45 billion due to inefficiencies in its logistics network. Freight traffic is set to experience 2.5 times growth in the next decade. India’s road infrastructure is already overstretched. With roadways and trucks doing the heavy lifting for freight shipping, transforming to supply chain orchestration can be the silver bullet, the industry needs.
By being fully integrated across all business processes and geographies, supply chain orchestration can help the truck industry in India achieve technological advancements and automation, which will result in cost effectiveness as well as business efficiencies. Business impacts will be enhanced and so will customer experiences. A seamless process will result in holistic development.