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In 2003, when Kimberly-Clark Corporation and Unilever’s home and personal care unit decided to operate a shared delivery system in the Netherlands, little did anyone know they were pioneering something that would emerge as one of the best supply chain practices in the world.

Two or more companies use the same distribution facility to serve common customers in a shared supply chain model. In the Netherlands experiment, the two companies made joint deliveries to customers by sharing a truck and each company filling half of the vehicle. The shared approach yields multiple benefits to every stakeholder in the value chain, as it cuts logistical inefficiencies at multiple levels.

Suppose three companies have factories operating in the same vicinity, and they make different products but use a common raw material. Using a shared model, the three companies can source the raw material from a common supplier and get it at one go, instead of it being transported thrice. The procurement and logistics cost would come down considerably if they can coordinate among themselves.

Many companies in the UK have come together to share transport resources. But now, some 17 years since the experiment started in the Netherlands, many manufacturing and logistics companies in India seem to have reposed hope in this concept, especially as one issue after another disrupts logistics operations across the world.

Need of the hour

Experts say the economic climate — disruptions, inflation, conflicts and fear of a recession — is causing businesses to look for innovative and cheaper measures. The world has been suffering uncertainties for long and the turmoil may get worse; they say. Under such conditions, it makes sense to try a shared supply chain model.

Moreover, changing customer demands has forced the logistics sector to up its game and deliver in shorter periods. “With this reality, logistic players have only two possible options before them: make some investment in infrastructure or look for a shared partner,” says Uttam Digga, Co-founder of on-demand intra-city logistics provider Porter. He says the fear is that any investment would be frugal and the company would resort to some “Jugaad”, which will no longer be feasible in the coming times. “It is also difficult for a single company to provide such a kind of supply chain service density.”

All these factors have made many sectors shift towards a shared supply chain model. Platforms like Porter have been offering shared logistics solutions for years. “But we are witnessing an increase in demand for this model now. A multi-fold increase in the number of trips has become possible because of the shared model,” he adds.

In India, where logistics and supply chain costs make up a massive 13-14% of the nation’s gross domestic product (GDP) — versus 8-10% in developing countries — the collaborative supply chain model offers a ray of hope. The Federation of Indian Export Organizations (FIEO) says a 10% reduction in India’s logistics costs can increase the country’s exports by value by 5-8%. Direct costs, which include transportation and warehousing, comprise 60% of the nation’s logistics cost, claimed a recent CII-Arthur D. Little report. Also, the country has to halve its logistics costs from 14% of GDP to 7% to bridge a competitiveness gap of $180 billion, it added.

This is the only way

Experts opine that given the basic design of the shared supply chain model, wherein the entire trip is mapped by more than one stakeholder, chances are that it would reduce inefficiencies, leading to a significant reduction in costs per trip.

This is the way of the future, says Anjani Mandal, CEO of Bengaluru-based Fortigo Logistics. The pandemic necessitated the need for a more efficient supply chain model and a shared model can minimize the operational costs for companies, he adds.

However, this is possible only when the companies realize that demand pooling and aggregating the purchase of goods and services can result in higher purchasing power and can eliminate systemic inefficiencies.

Karan Shaha, Co-Founder and CEO of road transport logistics firm Vahak, is also of the view that a shared supply chain model is not only feasible but a need of the hour in India. If the transport operators do not realize this, they might soon be out of business. Most transport businesses are run by small-scale informal sector players based in the hinterlands, he says. “With the rise of digital in retail, manufacturing and D2C business operations, the demand for advanced technology-driven logistics operations are on the rise, alongside the need for better, more specialized vehicles to bring down logistics costs. While organized logistics companies have already built facilities for their operations or are capable of doing so, small-scale truckers are at a disadvantage here. They don’t have the capital to invest in tech infrastructure. If they don’t transform with the market, they will be driven out of business,” Shaha adds.

Effective in the water

Shipping has been seeing the practice of sharing infrastructure. Instead of booking an entire 20/40-foot container, exporters opt for “less than a container load (LCL)” shipping. So, their cargo shares space in a shipping container cargoes from others, maybe even competitors. This is a classic example of a collaborative supply chain model.

Nishant Parmar, Sales Head of Bluebird Cargo Pvt Ltd, says to be cost effective on long-haul trips, several exporters and shipping firms opt for consolidating cargoes. “Let us suppose hiring a 20-foot container cost $10,000. If I send my shipment via loose cargo, I need to shell out just $6,000 or so. So, why would I pay $4,000 more?” asks Parmar.

On several long long-distance routes like India-US, exporters who used to book 20-foot containers now have started doing LCLs. The only disadvantage is that goods sometimes get dispatched after a delay because a container cannot be sent until it is completely filled, and all partners may not be able to send their goods to the container at the same time.

Traders who cannot afford a delay in delivery should go for the full container load (FCL) system, which involves only one shipper and one consignee. But if the exporters, along with their overseas buyers, can wait a bit, then a loose cargo system can easily result in cost saving of at least 30% per consignment, says Parmar.

In shipping, co-loaders handle such operations” — third-party players who consolidate the cargo of two or more LCL shipments in a container before handing it over to a carrier. “The modus operandi applies to air freight transportation as well. Major players like FedEx actively deal with loose cargo. They pick packages from different vendors and play the game on volume,” adds Parmar.

A sector gains

Several logistics companies across the country are successfully leveraging this model as it helps them cut operational costs. Savings in fuel, a major cost component for logistics players, is one obvious benefit of the collaborative supply chain model. Intercity trucking platform COGOS Technologies claims that it has been helping the FMCG sector gather supply chain efficiency by using the shared supply chain model. Prasad Sreeram, its CEO & Co-founder, says supply chain is extremely critical in FMCG as it has a big impact on the productivity cost of vendors, makers and sellers. “For them to achieve a particular efficiency, it is only possible if a collaboration happens, and that collaboration is being done by COGOS. We are trying to solve the logistics challenges by working with multiple FMCG companies to combine and collate their loads so that their vehicles are all synced to the delivery point. With this, we are able to save over 50-70% in logistics costs, which include fuel, people, the return of the goods, etc. This brings a lot of efficiency into the system,” Sreeram says, adding that the firm has started with FMCG but plans to take it to other sectors also.

As organizations gain scale new emerging business catchments, it leads to excessive underutilized assets that can be curtailed by using a common truck or warehouse or sort facility, says Charles Devlin D’Costa, Chief Supply Chain Officer, Gati KWE. This leads to environmental gains as well as an improved level of service without worrying about the costs of running an underutilized network. D’Costa mentions that firm's 19 Surface Transhipment Centres (STCs), connecting all major national highways, offer customers benefits of optimized supply chains and reduced transit times.

Would a shared system work smoothly in India, where small operators often have informal business practices? Besides, the logistics landscape is fragmented in India. Most players are small fleet owners (SFOs) or those who own up to 5 vehicles. Some 85% of the transporters in the country are small fleet owners (SFOs), according to the All India Motor Transport Congress. For such players, pooling resources together may be a better option under the circumstances.

Benefits for MSMEs

How can MSMEs make a shared system workable? After all, many MSMEs also stick to informal business practices.

The demand for efficient supply chains is sprouting from various parts of the country and consumption patterns are changing. Under such circumstances SMEs must be able to reach deeper into the hinterlands and penetrate these markets, says Madan Padaki, Chair-Rural Mobility, at the Institution of Engineering and Technology’s Future of Mobility and Transport Panel.

It is a question of survival. In such cases, the cost and speed of the supply chain become critical considerations. SMEs can’t set up their own supply chains because of cost and time issues. Besides, setting up a supply chain differs from running one, argues Padaki. Therefore, he says, SMEs have little choice but to embrace shared supply chains.

Even though the Indian context cannot be compared with that of developed economies, it is clear that shared logistics can provide SMEs access to external expertise. “Due to the pandemic, the country is witnessing an enormous growth spurt backed digitization and deep internet usage, resulting in better collaboration between large corporations and small businesses,” says Vivek Juneja, Founder and Managing Director, Varuna Group. Sharing can help SMEs gain knowledge to solve business difficulties and be a part of learning networks. Buyers and suppliers will benefit from collaborative planning. The more profit an SME can create through efficient logistics, the faster it can grow and expand, says Juneja, whose company is into transport management and 3PL services.

A shared supply chain model has many positives. The tricky part in reaping the benefits of such a shared system. It also needs trust among stakeholders. A buyer will participate in a shared supply chain only if he is sure the vendor will meet his demands on time. Keeping in view the nuances of the Indian business ecosystem, the concept would need some fine tuning before it can be widely implemented across the country. The smarter players will realize that sharing will help everyone.

Source: https://economictimes.indiatimes.com/small-biz/sme-sector/sharing-is-rewarding-how-sharing-supply-chain-resources-can-make-india-more-competitive-efficient/articleshow/92994538.cms