INDEX

LOGISTICS

WHAT IS LOGISTICS?

MISSION OF LOGISITICS MANGEMENT

REASON FOR LOGISTICS TO EXIST

GAINING ADVANTAGE THROUGH LOGISTICS

LOGISTICS INTEGRATION

REVERSE LOGISTICS

WHAT IS REVERSE LOGISTICS?

IMPORTANCE OF REVERSE LOGISTICS

APPLICATION AREAS

ACTIVITIES INVOLVED IN REVERSE LOGISTICS

DESIGN OF REVERSE SUPPLY CHAIN NETWORK

REVERSE LOGISTICS INFORMATION SYSTEM

LOGISTICS FROM INDIAN PRESPECTIVE

OBSTACLES TO LOGISTICS GROWTH IN INDIA

ROADMAP FOR LOGISTICS EXCELLENCE IN INDIA

STEPWISE APPROACH TO ATTAIN LOGISTICS EXCELLENCE

LOGISTICS & FOOD INDUSRTY

IMPORTANCE OF LOGISTICS IN THE FOOD INDUSTRY

LEADING TRENDS IN FOOD SUPPLY CHAIN IN FUTURE

FRANCHISING

WHAT IS FRANCHISING?

ADVNATAGES & DISADVANTAGES

POTENTIAL OF FRANCHISING IN INDIA

CASE STUDIES

DOMINIS PIZZA INDIA LTD.

MONGINIS INDIA LTD.

INTRODUCTION

WHAT IS LOGISITCS?
Getting the right product to the right place in the right quantity at the right
time, in the best condition and at an acceptable cost is the challenge of
logistics. It's an area that embraces purchasing and supplier management,
materials management and manufacturing, inventory management and
warehousing, distribution and transport, and customer service.
Logistics is concerned with getting the products and services where they are
needed when they are desired. It is difficult to accomplish any marketing or
manufacturing without logistical support. It involves the integration of
information, transportation, inventory, warehousing, material handling, and
packaging.

The operating responsibility of logistics is the geographical repositioning of

raw materials, work in process, and finished inventories where required at
the lowest cost possible.

The formal definition of the word ‘logistics’ is: - it is the process of

planning, implementing and controlling the efficient, effective flow and
storage of goods, services and related information from the point of
origin to the point of consumption for the purpose of conforming to
customer requirements.

Within the firm the challenge is to coordinate individual job expertise into
an integrated competency focused on servicing customers. In most situations
the desired scope of such coordination transcends the individual enterprise,
reaching out to include customers as well as material and service suppliers.
Ina strategic sense, the senior logistics officer leads a boundary spanning
initiative to facilitate effective supply chain relationships. The excitement of
contemporary logistics is found in making the combined results of internal
and external integration one of the core competencies of an enterprise.
Throughout the history of mankind wars have been won and lost through
logistical strengths and capabilities or the lack of them. Even though the
generals of the past have understood the critical role of logistics it is only in
the recent past that the big organizations have realized its role in the
achievement of competitive advantage.

Arth Shaw in 1915 pointed out that: the relations between the activities of
demand creation and physical supply… illustrate the existence of the 2
principles of interdependence and balance. Failure to co-ordinate any one of
these activities with its group-fellows and also with those in the other group,
or undue emphasis or outlay put upon any one of these activities, it is certain
to upset the equilibrium of forces which mean efficient distribution. The
physical distribution of the goods is a problem distinct from the creation of
demand. There are many ways of defining logistics but the underlying
concept might be defined as follows: ‘Logistics is the process of
strategically managing the procurement, movement and storage of
materials, parts and finished inventory through the organization and its
marketing channels in such a way that current and future profitability
are maximized through the cost-effective fulfillment of orders.’

THE MISSION OF LOGISTICS MANAGEMENT

The mission is to plan and coordinate all those activities necessary to

achieve desired levels of delivered service and quality at lowest possible
cost. Logistics must therefore be seen as the link between the marketplace
and the operating activity of the business. The scope of the logistics spans
the organization, from the management of raw materials through to the
delivery of the final product.
 Materials flow

Suppliers Procurements Operations Distribution Customers

Requirements information flow

REASONS FOR LOGISTICS TO EXIST

Logistics management from this total system is the means whereby the
needs of customers are satisfied through the coordination of the
materials and information flows that extend from the marketplace
through the firm and its operations and beyond that to supplies.

For example for many years marketing and manufacturing have been seen as
largely separate activities within the organization. At best they have
coexisted, at worst there has been open warfare. Manufacturing priorities
and objectives have typically been focused on operating efficiency, achieved
through long production runs, minimized setups, changeovers and product
standardization. On the other hand marketing has sought to achieve
competitive advantage through variety, high service levels and frequent
product changes.

In today’s more turbulent environment there is no longer any possibility of

manufacturing and marketing acting independently of each other.

It is now generally accepted that the need to understand and meet customer
requirements is a prerequisite for survival. At the same time, in the search
for improved cost competitiveness, manufacturing management has been the
subject of massive renaissance. The last decade has seen the rapid
introduction of flexible manufacturing systems, of new approaches to
inventory based on materials requirement planning (MRP) and just in time
(JIT) methods, a sustained emphasis on quality.
Equally there has been a growing recognition of the critical role that
procurement plays in creating and sustaining competitive advantage as part
of an integrated logistics process.
In this scheme of things, logistics is therefore essentially an integrative
concept that seeks to develop a system wide view of the firm. It is
fundamentally a planning concept that seeks to create a framework through
which the needs of the manufacturing strategy and plan, which in turn links
into a strategy and plan for procurement

GAINING ADVANTAGE THROUGH LOGISTICS

A firm can gain competitive advantage only when it performs its

strategically important activities (designing, producing, marketing
delivering and supporting its product) more cheaply or better than its
competitors.
Value chain activity disaggregates a firm into its strategically relevant
activities in order to understand behavior of costs and existing and potential
sources of differentiation. They are further categorized into two types
(i) Primary - inbound logistics, operation outbound logistics, marketing
and sales, and service
(ii) Support – infrastructure, human resource management, technology
development and procurement
To gain competitive advantage over its rivals, a firm must deliver value to
its customers through performing these activities more efficiently than its
competitors or by performing these activities in a unique way that creates
greater differentiation.

Logistics management has the potential to assist the firm in the achievement
of both a cost/productivity advantage and a value advantage. The under
lying philosophy behind the logistics concept is that of planning and
coordinating the materials flow from source to user as an integrated system
rather than, as was so often the case in the past, managing the goods flow as
a series of independent activities. Thus under a logistics management regime
the goal is to link the marketplace, the distribution network, the
manufacturing process and the procurement activity in such a way that
customers are service at higher levels and yet at lower cost.

COMPETITIVE ADVANTAGE

Effective logistics management can provide a major source of competitive

advantage. The bases for successes in the marketplace are numerous, but a
simple model has been based around the three C’s – Customer, Company
& Competitor. The source of competitive advantage is found firstly in
the ability of the organization to differentiate itself, in the eyes of the
customer, from its competition and secondly by operating at a lower
cost and hence at greater profit.

Seeking a sustainable competitive advantage has become the concern of

every manager who realizes the realities of the marketplace. It is no longer
acceptable to assume that the goods will sell themselves. An elemental,
commercial success is derived either form a cost advantage or a value
advantage or, ideally both. The greater the profitability of the company the
lesser is the cost of production. Also a value advantage gives the product an
advantage over the competitive offerings. Successful companies either have
a productivity advantage or they have a value advantage or maybe a
combination of the two.

There are two main vectors of strategic direction that need to be examined: -

PRODUCTIVITY ADVANTAGE

In many industries there will be a competitor who will be a low cost

producer and will have greater sales volume in that sector. This is partly due
to economies of scale, which enable fixed costs to spread over a greater
volume but more particularly to the impact of the experience curve.

It is possible to identify and predict improvements in the rate of output of

workers as they become more skilled in the processes and tasks on which
they work. Bruce Henderson extended this concept by demonstrating that all
costs, not just production costs, would decline at a given rate as volume
increased. This cost decline applies only to value added, i.e. costs other than
bought in supplies. Traditionally it has been suggested that the main route to
cost reduction was by gaining greater sales volume and there can be no
doubt about the close linkage between relative market share and relative
costs. However it must also be recognized that logistics management can
provide a multitude of ways to increase efficiency and productivity and
hence contribute significantly to reduced unit costs.

VALUE ADVANTAGE

It is a cliché that customers don’t buy products they buy benefits. These
benefits may be intangible i.e. they relate not to specific product features but
to such things as image and reputation. Unless the product or service that we
offer can be distinguished in some way from its competitors there is a strong
likelihood that the marketplace will view it as a ‘commodity’ and so the sale
will tend to go to the cheapest supplier. Value differentiation can be gained
in numerous ways. When a company scrutinizes markets closely it
frequently finds that there are distinct value segments. In other words
different groups of customers attach different levels of importance to
different benefits. The importance of such benefit segmentation lies in the
fact that often there are substantial opportunities for creating differentiated
appeals for specific segments. Adding value through differentiation is a
powerful means of achieving a defensible advantage in the market. Equally
powerful as a means of adding value is service. Increasingly it is the case
that markets are becoming more service sensitive and this poses a challenge
in management of logistics. It is important to seek differentiation through
means other than technology. A number of companies have responded to
this by focusing upon service as a means of gaining a competitive edge.
Service in this context relates to the process of developing relationships with
customers through the provision of an augmented offer. This augmentation
can take many forms including delivery service, after sales service, financial
packages, technical support and so on.
This matrix is a useful way of examining the options available for value and
productivity advantage:

SERVICE COST &

LEADER SERVICE
LEADER

COMMODITY COST
MARKET LEADER

In commodity market situations where a company’s products are

indistinguishable from their competitors’ offerings the only strategy is to
move towards being a cost leader or towards being a service leader. Often
the leadership route is not available. This particularly will be the case in a
mature market where substantial market share gains are difficult to achieve.

Cost leadership strategies have been based upon the economies of scale,
gained through greater volume of sales. This is why market share is
 considered to be so important in many industries. This cost advantage can be
used strategically to assume a position of price leader and make it difficult
for high cost competitors to survive. This cost advantage can come through
effective logistics management. In many industries logistics cost represents
such a large part of total costs that that it is possible to make major cost
reductions through fundamentally reengineering logistics processes.

The other way to come out of the commodity quadrant of the matrix is to
seek a strategy of differentiation through service excellence. Customers ion
all industries are seeking greater responsiveness and reliability from
suppliers; they are looking for reduced lead times, just-in-time delivery and
value added services that help them do a better job of serving their
customers.

LOGISTICAL INTEGRATION

Inventory Flow

Suppliers Physical Manufacturing Procurement

distribution support

Customers
Information Flow

INTEGRATED LOGISTICS
Logistics is viewed as the competency that links an enterprise with its
customers and suppliers. Information from and about customers flows
through the enterprise in the form of sales activity, forecasts and orders. As
products and materials are procured, a value added inventory flow is
initiated that ultimately results in ownership transfer of finished products to
customers. Thus the process is viewed in terms of two inter-related efforts,
inventory flow and information flow.

Inventory Flow
The management of logistics is concerned with the movement and storage of
materials and finished products. Logistical operations start with the initial
shipment of a material or component part from a supplier and are finalized
when a manufactured or processed product is delivered to a customer.

From the initial purchase of a material or component, the logistical process

adds value
By moving inventory when and where needed. Thus the material gains value
at each step.

For a large manufacturer, logistical operations may consist of thousands of

movements, which ultimately culminate in the delivery of the product to an
industrial user, wholesaler, dealer or customer.

Similarly for a retailer, logistical operations may commence with the

procurement of products for resale and may terminate with consumer pickup
or delivery.
The significant point is that regardless of the size or type of the enterprise,
logistics is useful and requires continuous management attention.

In order to understand logistics it is useful to divide it into three areas.

 Physical distribution
 Manufacturing support
 Procurement

Physical distribution
The area of physical distribution concerns movement of a finished product to
the customers. In physical distribution the customer is the final destination
of the marketing channel.

Unless the products are delivered where and when needed, a great deal of
marketing effort can be wasted.
All physical distribution systems have one feature in common: they link
manufacturers, wholesalers and retailers and ensure that the product is
available.

Manufacturing support
The area of manufacturing support concentrates on managing W.I.P
inventory as it flows between the stages of manufacturing.
A Master Production Schedule is prepared and arrangements are made for
timely availability of materials, components, parts etc.
Manufacturing support has one significant difference when compared with
physical distribution.
Physical distribution attempts to satisfy the needs of the customers while
manufacturing support involves movement requirements that are under he
control of the manufacturing enterprise.

Procurement

Procurement is concerned with purchasing and arranging in-bound

movement of materials, parts and /or finished inventory from suppliers to
manufacturing or assembly plants, warehouses or retail stores.
Procurement is also known as purchasing and buying and in some cases
inbound logistics. Procurement s concerned with availability of the desired
material assortments where and when needed.

Within a typical enterprise, the three areas of logistics overlap. The prime
concern of an integrated logistical process is to coordinate overall value-
added inventory movement. The three areas combine to provide integrated
management of materials.

Information flow

Information flow identifies specific locations within a logistical system that

have requirements. Information also integrates the three operating areas. The
primary objective of developing and specifying requirements is to plan and
execute integrated logistical operations. Within individual logistics areas,
different movement requirements exist with respect to size of order,
availability of inventory, and urgency of movement. The primary objective
of information sharing is to reconcile these differences.

Logistical information involves two major types of flows:

1. Planning & Coordination flows

2. Operation flows

1. Planning and coordination flows

Coordination is the backbone of the overall information system.
Coordination results in plans specifying:

 Strategic objectives
Strategic objectives detail the nature and location of customers, which
are matched to the required products and services to be performed.

 Capacity constraints
Capacity constraints coordinate internal and external manufacturing
requirements. Capacity constraints identify limitations, barriers, within
basic manufacturing capabilities and determine appropriate outsource
requirements.

 Logistical requirements
Logistics requirements specify the work that distribution facilities,
equipment and labour must perform to implement the capacity plan.

 Inventory deployments
Inventory deployments are the interfaces between planning/coordination
and operations that detail the timing and composition of where inventory
will be positioned.

 Manufacturing requirements
Manufacturing plans are derived from logistical requirements and
typically result in inventory deployment.
  Procurements requirements
Procurements requirements schedule material and components for
inbound shipment to support manufacturing requirements. In retailing
and wholesaling situations, procurements involve manufacturing
requirements.

 Forecasting
Forecasting utilizes historical data, current activity levels, and planning
assumptions to predict future activity levels. Logistical forecasting is
generally concerned with relatively short –term predictions.

The overall purpose of information planning/coordination flow is to

integrate specific activities within a firm and to facilitate overall
integrated performance.

2. Operational flows
The second aspect of information requirements is concerned with
directing operations to receive, process, and ship inventory as required
supporting customer and purchasing orders. Operational requirements
deal with
 Order management
 Order processing
 Distribution operations
 Inventory management
 Transportation and shipping
 Procurement

REVERSE LOGISTICS

Introduction
For years, returned merchandise was generally viewed as a headache for
both the seller and the buyer. But innovative thinking combined with a
desire to find a profitable opportunity has put a lot more focus recently on
reverse logistics.
WHAT IS REVERSE LOGISTICS?

Reverse Logistics is the process of planning, implementing, and controlling

the efficient, cost effective flow of raw materials, in-process inventory,
finished goods and related information from the point of consumption to the
point of origin for the purpose of recapturing value or proper disposal.
As far as managing the returns are concerned companies re-use them, re-sell
them, leave them to a third party or destroy them. But companies are more
likely to benefit if they can also make use of the information that comes
back with returned merchandise.

Importance of reverse logistics:

Reverse logistics is important for:
1) Assets utilization (rather we can say re-utilization)
2) Assets recovery (To capture the value, which otherwise will be lost)
3) Profit maximization: Cost reduction through recycling
4) To fulfill the Environmental obligations e.g.: Waste recycling, Hazardous
waste
management e.g.: Car batteries disposal.
5) Customer Relations Management, e.g. after sales service, buy back
guarantee

Application Areas

The list of industries where reverse logistic plays an important role:

1) Publication houses (40-50% by volume) :To take back the unsold
volumes for reuse.
2) Beverage industries: To collect reuse the empty bottles eg Coca cola &
Pepsi
3) Heavy industries: To collect and reuse the waste
4) Consumer goods industry: To fulfill the commitments of after sale service
and buy back guarantee.
5) Pharmaceutical industries: To collect the expired formulations and drugs
for environment friendly disposal.
6) Automobile industries: To fulfill the commitments of after sale service
and buy back

Activities involved in Reverse logistics

There are four main reverse logistic processes.

1) Collection
2) Combined inspection / selection /sorting
3) Re-processing or Direct recovery
4) Redistribution.

Collection refers to bringing the products from the customer to a point of

recovery.
In the inspection / selection and sorting phase products are being sorted
according to
the planned recovery option and within each option, products are sorted
according to
their quality state and recovery route.

Reprocessing includes:
Repair - Warranty returns needs repair

Refurbishing - Large installation, building or other civil object are

refurbished
after which it is again in a better state.

Remanufacturing/Retrievals - Products are dismantled and their parts are

used in
the manufacturing of the same products (remanufacturing) or of different
products (retrieval).
Recycling - In case of recycling, products are processed in order to get the
desired quality after which they are being reused e.g paper pulp and glass.

Incineration - Products are burned and the released energy is captured.

Direct recovery includes:

1) Re-use - End-of-use returns often contain valuable components which can
be re-used.
2) Re-sale - Supply chain returns (products in good condition) can be sold at
a discount rate or at a secondary market.
Redistribution - is the process of bringing the recovered goods to the new
users.

Design of reverse supply chain network :

In conventional supply chains, logistics network design is commonly

recognized as a strategic issue of prime importance. The location of
production facilities, storage concepts, and transportation strategies are
major determinants of supply chain performance. Reverse logistics should
also be taken into account during the design of the support network such as
location and capacity of warehouses, plants, choice of outsourcing vendors,
distribution channel and supporting technology. Returns information
captured should be integrated with forward supply chain information to
achieve optimum planning and reduction of costs. The whole support
network can then be designed in such a way that it can service both the
forward and Reverse Logistics processes efficiently. This is in line with the
concept of a closed-loop supply chain design.

The logistic network structure catering to Reverse Logistics can be divided

into two portions:

a) The Convergent Network This is the portion of the network

accumulates used products from individual sources and conveys them
to some recovery facility. Companies can set up dedicated returned
products collection centers at specific locations or collect the products
through retailers and distributors.
b) The Divergent Network: - A divergent network part links recovery
facilities to individual customers purchasing reusable products. This portion
of the network is very much similar to traditional forward supply chain
distribution networks and integration with forward supply chain can be done
here for maximized optimality.

Strategic points in the design of reverse supply chain network:

1) Acquisition/collection of returned/used products Managing the

collection and acquisition of used &/or returned products potentially
accounts for a significant part of the total costs of any closed-loop supply
chain. To design the network for collection a company can install several
drop points for customers to hand in used products, integrate the reverse
flow of used products with other transportation flows or use a direct express
mail system to bypass several stages of the network for fast processing. The
type of design depends on different product types and needs of the
customers. Retailers and distributors are often used as the points of
collection.

2) Testing/grading operations: - The location of the test and grade

operations in the network has an important impact on the flow of goods. It is
only after this stage that individual products can be assigned to an
appropriate recovery option and hence to a geographical destination. It is
important to see a tradeoff between transportation and investment costs at
this stage. Testing collected products early in the channel may minimize
total transportation distance since graded products can directly be sent to the
corresponding recovery operation. On the other hand, expensive test
equipment and the need for skilled labor act as drivers for centralizing the
test and grade operations.

3) Reprocessing: - The reprocessing generally requires high investments in

establishing the network for reverse logistics. The costs for specialized
remanufacturing or recycling equipment influences the economic viability of
reprocessing. Integration of product recovery operations with the original
manufacturing process can offer economies of scale which involves sharing
of locations, workforce, or even manufacturing lines.

4) Redistribution: - Redistribution stage resembles a traditional distribution

network. In particular, we find the conventional tradeoff between
consolidation and responsiveness in transportation. If collection and
 redistribution are combined we can achieve efficiencies in vehicle loading.
Redistribution can also be done along with distribution of new products.

Customer
returns Reverse
product Transport
into reverse
flow
Can the Can the Does the
Sorting /
product be product be product have Waste
Testing
resold? repaired/ residual Disposal
refurbished? value?

Basic
Processing Repair/ Value
refurbish Recovery Compliance
e.g. Repacking Information
Recondition

Primary Reprocessors,
markets stock, Secondary Recycling
vendor and markets/ market
supplier Outlet stores

Reverse Logistics Information Systems

One of the most serious problems that the companies face in

execution of a reverse logistics operation is the dearth of good information
systems. To work well, a flexible reverse logistics information system is
required. Reverse logistics is typically a boundary-spanning process between
the companies or business units of the same company, thus developing
systems that have to work across boundaries adds additional complexity to
the problem. Eg: for a retailer, a system that tracks returns at store level is
desirable. The system should create a database at store level so that the
retailer can begin tracking returned product and follow it all the way back
through the supply chain.
Information systems should also include detailed information programs
about important reverse logistics measurements, such as return rates,
recovery rates, and returns inventory turnover etc.
For many companies, current information systems do not allow them to
monitor the status of their returns. Additionally, useful tools such as radio
frequency (RF) are helpful. New innovations such as two-dimensional bar
codes and radio frequency identification license plates (RFID) may soon be
in use extensively.

Reverse logistics practices vary based on industry and channel position.

Industries where returns are a larger portion of operational cost tend to have
better reverse logistics systems and processes in place. For Reverse
Logistics to be successful, collaboration between the supply chain partners is
very important. Technologies like bar-coding and RFID helps in making
reverse logistics operations more effective and

LOGISTICS FROM INDIAN PRESPECTIVE

IMPACT OF TRANSPORT INFRASTRUCTURE ON LOGISTICS IN

INDIA

OBSTACLES TO GROWTH

Like most countries in transition, India is not without obstacles to growth.

Ongoing political strife with Pakistan over the Kashmir border is cause for
concern among foreign investors, as is overpopulation and its impact on
environmental sustainability and social welfare.
But perhaps India's greatest impediment is its inability to quickly and
efficiently move product from inland facilities to its ports, a problem directly
linked to dated and disconnected transportation infrastructure.

"India risks missing out on an additional one to two percent of annual GDP
growth led by its emerging manufacturing sector unless the country can
improve transport connections to meet the just-in-time requirements of
complex international supply chains," notes a recent study, Connecting
India: Transport Challenges and Opportunities, authored by Drewry
Shipping Consultants in concert with NOL Group and its operating
businesses in India, APL, and APL Logistics.
Cargo transportation expenditures in India are among the highest in the
world, accounting for 11 percent of total landed cost, the report notes. As a
result, foreign direct investment over the past two years has been
stifled.Most industry insiders point to India's lax attitude toward economic
reform -- especially compared to China -- as the primary reason for its
sluggish response to these problems.

"India is still underdeveloped in terms of basic infrastructure to support

industrial growth, India is a democracy, with its own advantages and
disadvantages, especially when it comes to project implementation, land
acquisition, environmental clearances, and labor laws.
"In particular, India needs to progress on labor reforms, as most laws are
based on socialist ideologies and not capitalism, which is discomfit for
potential foreign investors who might want to set up efficient manufacturing
bases in India," he adds.

Still, India's existing inland transportation network, albeit flawed, is

considerably more developed than China's. Its 39,289 miles of railroad track
rank fourth in the world closely behind China -- despite the fact that China
is three times larger in total land area. India's 2.4 million miles of roads more
than double China's total.

The Indian government is quietly amending its economic policies, reducing

trade barriers, and inviting more private sector investment to help alleviate
these transportation gaps and create better synergies between its ports and
inland transportation networks.
The impact of global enterprises such as Menlo Worldwide and FedEx
similarly cannot be understated. Continuing innovation and expansion on
their part will help India expedite its learning curve in much the same way
China's government has leveraged foreign expertise and investment to fuel
its economic engine.

In turn, ample growth opportunities for large integrated global logistics

providers exist and support the booming retail market in India as 3PL
providers for inbound and outbound logistics to manufacturing industries.

"A number of small integrated logistics players operate in India, but none
currently are large enough to have processes that could be globally
benchmarked," Goel says. "In fact, a number of large international logistics
companiess are keen to expand into India by taking a management stake in
small or medium- sized, well-established, family-owned logistics businesses
that have potentially reached the limit of their scale and exper

ROADMAP FOR LOGISTICS EXCELLENCE IN INDIA

Point A: Current position. In the absence of major structural changes

(changes in
infrastructure and regulation, and logistics practices) it may be possible and
desirable to move to point B.

Point B: Quality of logistics service would improve and logistics costs

would
increase and may be comparable to China or may be even higher. This
would be a
consequence of increased sensitivity to the hidden and opportunity costs
discussed earlier.

Point C: If India is able to improve on either infrastructure front or on

practices
front, or a moderate mix of both, we can shift the cost quality frontier
downward
and we would be able to move to Point C. This has higher quality of
logistics
service and lower logistics costs compared to Point B. However, Point C
would
have higher logistics costs compared to Point A.

Point D: If India is able to make substantial changes in infrastructure and

practices front, we can shift the cost quality frontier further downward and
we
would be able to move to Point D where in there would be lower logistics
costs
and substantially higher quality of logistics service compared to the current
position A.

STEPWISE APPROACH TO ATTAIN LOGISTICS

EXCELLENCE
• Government
- Review provisions of Motor Transport Workers Act and Motor Vehicles
Act.
- Streamline inter-state and intra-state movements by avoiding regulatory
check points. Replacing the current sales tax structure by a value added tax
would be a great facilitator [Avittathur and Shah, 2001].
- Continue the focus on physical infrastructure development (like the current
National Highways Development Project). An integrated transport policy is
imperative.
- Have more mature frontline regulatory functionaries to ensure better
compliance with the law.
- Review incentives that create the small sized operator, since it creates
distortions in the industry structure.
- Facilitate the build-up of quality human resources infrastructure through
education and research.

• Industry
- Evolve standards and certification systems for practices in transportation,
warehousing, handling and contracts (for each vertical). (The appendix gives
a sample perspective on a few standards adopted in the US and in India for
certain exports).
- Insist on members complying with the law and standards.
- Benchmark for tracking progress on logistics maturity (by using a
Capability
Maturity Model) [Singh and Shah, 2001].
- Facilitate the sharing of best practices and benchmarking against
performance
indicators (including costs) by supporting research on a sustained basis.
- Invest in the build-up of quality human resources infrastructure through
education and research.
- Organize the “people” sector: small suppliers, distribution intermediaries,
transporters, and retailers.

• Shipper
- Be sensitive to long run cost and value due to better logistics services. If
commercially viable, work with service providers to insist on and improve
logistics quality. Third party logistics service providers could be an
opportunity.
- Insist on compliance with standards and the law.
- Develop appropriate performance measures, both for own performance and
the service providers’ performance, and systems to monitor them.
- Build the compliance requirements and performance measures into
contracts.

• Service Provider
- Be sensitive to long run cost and value due to better logistics services.
Identify market segments that have value for quality and make appropriate
investments. Scale and scope of operations would be useful
instrumentalities.
- Comply with standards and the law.
- Develop appropriate performance measures and systems to monitor them.

However, there are limits imposed by fundamental cultural and socio-

economic
factors, as to what extent the unholy equilibrium can be changed.

• Soft attitude towards time: driven by philosophy and culture.

• Significant role of small player: driven by “forced entrepreneurship” due to
surplus labor, need to drive down costs, easy entry/exit, and the ability to
bear
demand risks and transaction risks.

In the long run, it is possible that these would also change.

In conclusion, a methodology is required to be in place to measure logistics
cost and
quality of logistics service on various dimensions. Apart from the imperative
focus on
standards and practises, it is useful to have a prioritization for infrastructure
improvement.

LOGISTICS & FOOD INDUSTRY

IMPORTANCE OF LOGISTICS IN THE FOOD INDUSTRY

Food industry companies, like all companies in long value chains, are facing
new challenges from both ends of the chain.
The driving force for all food industry companies is the consumer, whose
shopping behavior they want to meet and have an influence on. It is in the
interests of both the consumers and the companies that the entire food chain
works as seamlessly as possible.
Smooth operation throughout the chain also has an effect on how
competitive the food industries of entire countries or market areas will be in
new, opening markets.

Benefits of Systematic Logistical Management to the Partners

Partner Benefits
Manufacturer Greater market penetration

• Small firms able to service multiples

• Ability to service greater number of RDCs
• Enlargement of potential territory

Provides for more cost-efficient full load deliveries Ability to

focus on core competencies due to single point delivery
Reduced transport costs
Transport Provider More efficient use of vehicles

• Improved scheduling of vehicles due to

standardisation of routes

• Reduced miles driven with less than full loads

Franchisee More efficient use of RDCs

• Maximizes full load deliveries into RDCs

• Improved labour productivity at RDCs

Lower inventory levels Increased frequency of delivery

• Greater product variety

• Improved product alignment with customer demand

Shorter time in stock resulting in increased shelf life to the

consumer.

RDC-Regional Distributional Centre

LEADING TRENDS IN FOOD SUPPLY CHAIN IN FUTURE

FOUR MAJOR PREDICTIONS FOR THE FUTURE MARKET:

a. Food Industry Globalization & Consolidation.

Retailers, Manufacturers and Supply Chain Logistics Providers are all

consolidating in order to achieve sufficient scale to become global players.
In order to compete with the largest organizations in their market space the
survivor food companies must all look to grow globally through merger
while also looking to reduce investment in hard assets and focusing their
resources on those areas where they have a core competency. In logistics and
supply chain technology many food companies are looking to outsource to
asset owners like ProLogis distribution facilities and logistics providers like
GATX and USCO their hard assets (trucks and warehouses) as well as the
provision of supply chain technologies where many of the food companies
do not have core competencies.

Prediction: A few major global players will become supply chain managers
and channel captains for an entire supply chain. These outsource provider's
will then dictate the logistics management of a supply chain through use of
their technology.
b. Trading Partner Collaboration.

All the leading food manufacturers and retailers are devoting considerable
effort to integrating information systems with their trading partners using
both EDI, and more recently web based internet systems or e-market
hubs/exchanges. They recognize that improved information sharing provides
greater visibility and with visibility more opportunity for exception event
management or supply chain monitoring. Despite spending more than $200
million on Web-based demand planning and forecasting tools last year,
companies are still struggling to come up with accurate data to manage their
inventories. But without that data, the effectiveness of other supply chain
applications is severely limited, experts say.
As part of VICS, an industry standards group, various trading partner pilots
for collaborative planning, forecasting and replenishment (CPFR) are
underway. These pilots have demonstrated that through collaboration and
sharing of information trading partners can significantly increase sales,
improve inventory turns, out of stock, and customer satisfaction while at the
same time reducing inventory and cycle times. They have however not yet
demonstrated that the pilots will scale and that a company can utilize the
concept across multiple supply chains with competing trading partners.
VICS and several web based logistics organization like Transpace, Nistevo
and logisitics.com have also devoted considerable effort to championing
collaborative efforts in transportation getting companies to share shipping
requirements, etc in order to achieve better utilization of the trucking
resource through less-than-truckload to truckload consolidation, less empty
backhaul and more continuous move transportation.

Prediction: As more and more supply chains implement collaboration

across all of their product lines, the ability to optimize one supply chain
among a supply web of supply chains will become increasingly difficult.
Companies will begin to focus on synchronization of their execution supply
chains rather than optimization of a particular product forecasting/planning
plan and will move to sub-optimize in the supply chain in order to create the
greatest benefit/profit for their internal organization.
c. Supply Chain Execution Management.

SCEM effectively addresses unplanned events (shipment delays, parts

shortages, production delays, demand swings) which often derail optimized
production and fulfillment plans. Such plans, implemented through
traditional optimization applications, give rise to rigid, linear value
environments. These 'chains' must give way to 'dynamic supply networks'
and the collaborative and synchronous technology that drives them. Termed
"adaptive planning" by Forrester and "Supply Chain Event Management" by
AMR, the leading SCEM uses an active-router technology that provides the
much needed 'key' to flexible and extensible solutions for the real-time
management and swift resolution of exception events.
This technology allows for the processing of high volumes of distributed
transactions between members of a supply chain in a fast and low cost
manner. With a focus on inventory and orders these execution management
systems allow for the tracking of an order or inventory stock-keeping unit
(SKU) using the unique numbering system (PO,SO, BOL, etc.) of the
individual trading partner as well as providing a single consolidated view of
all trading partner inventory in a supply chain by SKU). This ability to
provide total supply chain visibility at a single point (public or private hub)
gives the trading partners the ability to proactively manage their portion of
the chain.

Prediction: Supply Chain Execution Systems will become the primary

means of managing a supply chain across multiple trading partners with the
synchronization of inventory and orders in real time replacing less effective
planning and forecasting optimization technologies.
d. Marriage of Logistics Planning and Execution.

As SCEM systems become better at providing the real time information

necessary to manage a supply chain, they will also become better at
predicting the future. Eventually, the real time execution system will have
the capabilities to incorporate long range forecasts, plans and schedules into
the real time execution systems and reduce the need for advanced
planning/forecasting systems as used today. Based on the truth of Moores'
Law: "The capacity of a microprocessor doubles every 18 months", Guilder's
Law: "Bandwidth will triple every 12 months", and Metcalfe's Law: "The
potential value of a network is exponentially proportional to the number of
machines connected to it" we will continue to see a rapid change in internet
based technology impacting both planning and execution supply chain
technologies.
Similar to what we see in the airline industry, as SCEM systems become
better at providing the real time information necessary to manage a supply
chain they will also become better at predicting the future. Eventually the
real time execution systems from companies like i2, Vizional Technologies
and Microsoft will have the capabilities to incorporate long range forecasts,
plans and schedules into the real time execution systems and reduce the need
for advanced planning/forecasting systems as used today.
Prediction: Advanced planning and forecasting systems will be merged into
supply chain execution management systems with inventory and orders
being synchronized between trading partners using these advanced SCEM
real time systems.

FRANCHISING
What is Franchising?
The term "franchising" is used to describe a wide variety of business
systems which may or may not fall into the legal definition provided above.
For example, a vending machine operator may receive a franchise for a
particular kind of vending machine, including a trademark and a royalty, but
no method of doing business.

The parties involved typically enter a franchise agreement, which binds the
parties together through contractual provisions. This is an arrangement
whereby someone with an idea for a business (the franchisor), sells to
another person (the franchisee) the rights to use the business's name, sell a
product, or provide a serviceto someone else. A franchise agreement will
usually specify the given territory the franchisee retains exclusive control
over (the area protection), as well as the extent to which the franchisee will
be supported by the franchisor (e.g. training and marketing campaigns).
Most franchisee agreements, however, do not provide the franchisee with
area protection because of the disparity in bargaining power between
franchisors and franchisees.

Franchising is a marketing format, a very powerful way of retailing goods

and services. It is a business partnership. The franchisor provides the know-
how, training, system and the brand, whereas the franchisee forms the front
end and is responsible for managing his business unit. In the US, almost a
third of the retail sales come from franchised business. Globally, there are
over a nine hundred thousand franchised outlets with sales exceeding a
couple of trillion of dollars. In India, the industry is a little over ten million
($). There is limitless potential, as this industry is at a very nascent stage.
What has made franchising so popular all over the world? From the
perspective of a franchisor, franchising represents an efficient method of
rapid market penetration and product distribution without the typical capital
costs associated with internal expansion. From the perspective of the
franchisee, franchising offers a method of owning a business but with a
mitigated chance of failure due to the initial and ongoing training and
support services offered by the franchisor. From the perspective of the
consumer, franchised outlets offer a wide range of products and services at a
consistent level of quality and at affordable prices. Thus, enabling a win-win
situation.

Ordinary start-ups face a problem with finding the right location, evaluating
an opportunity and also in most of the times lack experience as to how a
similar business is managed. They risk their initial investment. 90% of start-
ups fail in the first year itself. Of those that survive another 90% fail in the
next two years. In a franchised business, over 90% succeed. This success
rate usually lures entrepreneurs with no experience but with a surplus capital
and a will to succeed towards franchising.

The greatest monetary benefit for the franchisor is the network of a large
number of entrepreneurs (which is an intangible asset) in the form of
franchisees who all work together to achieve the goal of the franchisor. The
franchisee is a dedicated entrepreneur and not a salaried employee, thus he is
more likely to show greater commitment dedication, interest and
involvement. The franchisee benefits from a tried tested and proven business
concept, which can dramatically reduce the chances of failure.

ADVANTAGES & DISADVANTAGES OF FRANCHISING

ADVANTAGES

As practiced in retailing, by using the business network concept, franchising

offers franchisees the advantage of starting up a new business quickly based
on a proven trademark and formula of doing business, as opposed to having
to build a new business and brand from scratch (often in the face of
aggressive competition from franchise operators). In addition, a
comprehensive study completed in 2006 by Franchise Business Review
clearly demonstrates that the majority of franchisees are satisfied with their
decision to invest in a proven system (86% positively rated their franchise
opportunity and 71% said they would "do it again").

As long as their brand and formula are carefully designed and properly
executed, franchisors are able to expand their brand very rapidly across
countries and continents, and can reap enormous profits in the process, while
the franchisees do all the hard work of dealing with customers face-to-face.
See customer service. Additionally, the franchisor is able to build a captive
distribution network, with no or very little financial commitment.
For some consumers, having franchises offer a consistent product or service
makes life easier. They know what to expect when entering a franchised
establishment. See franchise validation
DISADVANTAGES

For franchisees, the main disadvantage of franchising is a loss of control.

While they gain the use of a system, trademarks, assistance, training, and
marketing, the franchisee is required to follow the system and get approval
of changes with the franchisor.
In response to the soaring popularity of franchising, an increasing number of
communities are taking steps to limit these chain businesses and reduce
displacement of independent businesses through limits on "formula
businesses."
Another problem is that the franchisor/franchisee relationship can easily give
rise to litigation if either side is incompetent (or just not acting in good
faith). For example, an incompetent franchisee can easily damage the
public's goodwill towards the franchisor's brand by providing inferior goods
and services, and an incompetent franchisor can destroy its franchisees by
failing to promote the brand properly or by squeezing them too aggressively
for profits.

POTENTIAL OF FRANCHISING IN INDIA

India is a geographical diverse country. Franchising in India is at a very

nascent stage. However, this industry has clocked the growth rate of 25-
30%, the second fastest growing industry. In the US, 45% of the sales comes
from franchised business, India is still to reach that stage, where franchised
business are as widespread as the local grocer.

Franchising, as a dynamic and ever changing industry will firmly establish

itself in a couple of years. It is not difficult to spot malls. Organised retailing
though only at 2% of the retailing, will take off in a very big way. The
Indian middle class has been slowly expanding, it now buys consumer
appliances, thanks to the economy growth of over 8, the stock market
crossing 6,000, forex reserves surpassing 100 Billion USD, and the increase
in disposable income. Today, over 33 million Indians can afford the best
services and products and over 310 million Indians buy consumer
appliances.

India offers lot of potential for the franchising community. Apart from
Indians being very entrepreneurial, franchising as a way of doing business
has been well accepted.
One of the primary factors which control the success of a franchising
business in an emerging economy like India is the ability of a foreign
franchisor to identify and seize the appropriate moment when the business
environment is favorable and reap its rewards. Home to over a billion
people, including a flourishing class of urban consumers possessing
considerable amounts of disposable income together with the continued
growth of the economy have strengthened India’s claim to be a viable and
beneficial destination for a foreign franchisor.

India offers vast openings for a franchisor to set up its business; create
awareness for his products or services and exploit the enormous market
offered. As a result, it comes as no surprise that India has recently been
declared as the second most attractive destination for retailers among 30
emerging markets. Though current investment regulations of the Indian
Government bar foreign investment in the retail sector, it hasn’t deterred
foreign participation.

Rather than shying away form the enormous market that India offers,
international companies like Marks and Spencer, the global retail chain of
stores have taken to entering into different forms of franchising agreements,
ranging from just use of its trademark for a fee to the standard model of
allowing its system to be used for a franchise fee.

Seasoned frachisors such as McDonalds were one of the first to realize the
widespread prospects offered by India and extended its services into this
market. The international recognition of its brand together with the
adaptation of its products to suit the preference of Indian consumers, which
include offering more spicy items in its menu, has resulted in McDonalds
becoming a household name in India.
Almost every product or service has a market in India but sometimes,
innovative strategies like “indianisation” of its products and marketing
techniques must be employed by a foreign franchisor to further access the
sizable market of India. A notable example in this regard is the deliberate
exclusion of beef by McDonalds giving due consideration to the religious
sentiments of the Indian public. Most of India’s population are followers of
the Hindu religion which preaches that the cow is considered sacred and it
therefore anti-cow slaughter.
There is no specific legislation regulating franchise arrangements in India,
but there are various laws that affect the relationship between the franchisors
and franchisees, including intellectual property laws, taxation, labor
regulations, competition laws, property and exchange control. A deep
understanding of the laws related to the business of franchising is imperative
for a foreign franchisor that is planning a foray into the India market.

The Government permits foreign franchisors to charge royalties up to 1% for

domestic sales and 2% on exports for use of the foreign franchisor’s brand
name or trademark, without transfer of technology. In effect, this means that
by lending just their brand name or trademark to an Indian company, a
foreign company can receive royalties. The laws in India also permit lump
sum and royalty payments to be made by Indian franchisees to their foreign
counterparts for use of foreign technology, which includes manuals, systems
etc. Lump sum payments up to US$ 2 million are permitted and royalties of
5% on domestic sales and 8% on exports can be paid to the foreign
franchisor. In addition, foreign companies can enter into consulting
agreements and receive up to US$ 1 million per project. Amounts in excess
of these can also be received but with the permission of the Indian
Government.

These rules allow a foreign franchisor to structure its business in India in

such a way so as to ensure that it can repatriate the maximum amount from
India.

A foreign franchisor also needs to decide whether to appoint a master

franchisee for the entire country or appoint franchisees around the country
independently or through its subsidiary in India, which acts as a master
franchise. The franchisee will not only be responsible for developing and
adapting the foreign prototype to a new and different market in which it has
limited name recognition, but will also be responsible for implementing the
expansion plan of the franchisor for the entire country. It is important to
recognize that a potential master franchisee in Northern India may have an
extremely strong network in that part of the country.
India is a huge market and demands, networks and languages vary from
region to region and state to state. It may be a better idea to appoint different
franchisees for different regions rather than trusting one master franchisee to
control the appointment of suitable sub-franchisees around the country.
Further, it is vital to conduct a thorough financial and legal due diligence or
feasibility report on one’s potential partner, which includes a check on the
owners, directors, financial status and its ability to invest and expand the
business.
Taxation is another issue which deserves due consideration. It is important
to know the local sales tax property tax and withholding tax. Eventually, the
local tax laws and the existence of treaties between the countries involved
may have considerable influence on the structure adopted.

A signatory to the international conventions on intellectual property rights,

India offers adequate protection to trademarks or brand names as well as
copyright and designs of the foreign franchisor. A significant step taken
recently is the recognition and protection extended to service marks in India
enabling the foreign franchisor to license its mark to a franchisee in order to
extend the services synonymous with him to the consumers in India.
Enforcement mechanisms are becoming more reliable, which has previously
been a bone of contention for foreign corporations.

The key issue to a beneficial relationship between any franchisor and its
franchisee is related to the smooth transfer of technology and training of
personnel followed by regular assistance provided by the franchisor in the
running of the business. Like other developing countries, India had, until
recently, a restrictive technology policy that attempted but didn’t succeed in
attracting substantial foreign technology. Owing to this, franchisors initially
preferred to spread their business in countries that were investment friendly
or culturally similar to the country of their origin.

Post 1991, India has liberalized the economy and has also emerged as an
information technology and outsourcing hub. These, coupled with the
omnipresent knowledge of English language amongst Indians have
substantially bridged the cultural divide between India and the Western
countries. Indian franchisees have successfully comprehended and
implemented technology that initially may have been alien to them and have
provided the required impetus to the franchising industry. In addition to
bringing down the costs for the franchisors, the increase in the level if
education amongst Indians has created a pool of talent and skill which can
be relied on by the foreign franchisors for beneficial partnerships and its
fruitful outcome.

The need of the hour is for the foreign franchisors to realize the unparalleled
prospects which franchising in India can offer to the expansion of their
businesses. Careful planning and evaluation of the Indian market by foreign
franchisors combined with an increase in the entrepreneurial skills of the
Indian businessman will provide them a platform to gain entry into the
Indian market, raising the awareness of their products and services. The
business and social climate in India is ready for foreign franchisors and they
must wake up to the fact that now the time is right!