The use of pallets in the Indian automotive sector is patchy and influenced by a lack of infrastructure but there are signs that palletisation is about to be embraced.
Seldom in the history of Indian industry has the concept of storage attained the levels of importance as it has today. In India, storage relevant to movement of goods from points of production to points of consumption has typically received scant attention. This attitude can be traced back to the state-controlled economy that was Indian’s main feature since independence in 1947, in which the economy faced constant shortages. How any goods–be it raw materials for production or finished products for consumption–moved on road or rail was immaterial because the condition in which they were bought never raised consumers’ concern. In a closed economy, availability itself was a boon. Dents–minor or major–were non-issues. But this was not to continue forever.
Though global giants such as Glaxo, Cadbury, Coca-Cola and IBM have been present in India for decades before the economy was opened or even before independence, and were exposed to modern storage and movement methods, most of the rest of India Inc. were not privy to these best practices. However, the liberalisation of the Indian economy in the 1990s and the major foray of auto and telecom giants have brought about a major transformation. A brief review of the history of pallets suggests that they have been in use for close to a century now in the West and that their initial evolution was mostly driven by changes in lift trucks. Today, India may finally be catching up.
Palletisation as a practice was only widely adopted around the Second World War by the US armed forces as it helped speed up distribution, improve space utilisation and free-up manpower. Since then, pallets have been widely used the world over by businesses to reap these (and other) benefits that have a direct positive impact on their bottom line. Today’s logistics professionals are faced with unprecedented pressure to drive costs out of their operations. In a supply chain that has the requisite infrastructural support, a pallet forms the backbone of an efficient operation, says Vishal Patell, director, supply chain for Chep India, a company that specialises in renting out its storage equipment–pallets in particular–instead of outright sales.
What’s the level of palletisation in the automotive segment?
“It’s very low,” is the direct response from Akash Bansal, head of logistics at Om Logistics. His words are as good as they say because Om Logistics has been servicing Maruti Suzuki, India’s automotive giant, right from inception. But why is palletisation so low? “India still believes in manual labour because of its abundant supply,” he says.
Om Logistics services every conceivable automotive major for both inbound and outbound logistics. As a 3PL service provider, Bansal postulates that wholesale palletisation in the automotive segment has to come from the suppliers’ end– meaning the tier one and tier two vendors. With automotive production growing quickly, and the industry poised for a continued leap thanks to easy finance and growing economic indicators, there is considerably more pressure on auto component suppliers to get their items to the assembly line and thus help OEMs to churn out vehicles at a faster clip so that they don’t lose out on market share as a result of non-availability. Creating customer satisfaction must be the number one priority for every carmaker and supplier today since, unlike in the past when there was limited supply, today’s astute customer can move between one dealer and another and compare products. It’s a shortage of a different kind.
If Chep is to be believed, the low penetration of palletisation in the automotive sector is down to the fact that infrastructural developments in India, such as standardised and robust trucks, efficient highway systems and state-ofthe- art warehousing, are still in their infancy and thereby reduce pallets to “an article of storage” in most cases. (See p44: Infrastructure, the big hurdle).
Kalpesh Pathak, assistant vice president, corporate SCM, Fiat India Automobiles, offers a wider perspective on the same issue: “First of all, very few vendors are using pallets for material supply due to cost pressures and other factors such as vehicle cube utilisation. Moreover, palletisation with corrugated or PP boxes [Polypropylene] is not recommended as stacking is not permissible with this type of material. Nonetheless, palletisation with standard crates and uniboxes is good to have a better cube utilisation during transit.”
As a result, Fiat’s Ranjangaon facility, in the western state of Maharastra, has gone in for 40% palletisation. What is holding back a greater percentage of palletisation is a lack of awareness in the industry and simultaneous change in other packing materials (plastic or hard PP) as well as the non-availability of standardised side-opening trucks.
Manjit Singh Khurana, director of Pilco Storage Systems, a Delhi-based manufacturer of storage systems including pallets, bins and crates, has been a regular supplier to Maruti Suzuki among other carmakers and tier one and tier two auto component vendors. “There was a time when Maruti used to face an onrush of trucks bringing in items from vendors and their waiting time used to be a minimum of three hours. This was a drain on time and resources. Palletisation, it was felt, would solve this problem and rightly so,” he explains.
Unlike Chep, Khurana does not rent out but goes in for outright sales like Neel Kamal, another big name in this sphere. Khurana boasts of 30% annual growth and is eagerly investing in Italian machinery to augment his manufacturing prowess to meet the unending appetite of the automotive sector, particularly in the passenger car sector.
Sizes have more or less stabilised as far as palletisation is concerned. They are available in 1200 x 1200mm, 1200 x 800mm and 1000 x 1000mm. Sizes are not important, what matters is the cube utilisation of the vehicle. The key issue is how to achieve an optimum utilisation of vehicle space. “The industry is not matured as far as packaging and transportation is concerned, which is resulting in a lot of inefficiencies as far as pack density is concerned,” points out Fiat’s Pathak. According to him, current pack density, including returnable container supplies, is to the tune of 70–75%.
Om Logistics’ Bansal adds, “Today, vehicle cube utilisation is done manually. Trucks are loaded haphazardly. [There is] no scientific planning, though technology is readily available. But before technology can help us, standardisation of packaging should happen. Otherwise, even a supercomputer would find it extremely impossible to yield optimum results.”
Notwithstanding these hardships, there is a general belief that a system orientation will happen in India, resulting in better space utilisation. Why? Because everyone desires better returns. Better space utilisation for tier one and tier two vendors would mean increased business opportunity for every trip to the assembly line. For transporters or 3PLs, this would also mean higher mileage and higher returns since there would be more volume carried.
Transport as an asset-yielding returns is all about maximising volume and distance. Even for carmakers, better pack density or vehicle space utilisation can help to justify a just-in-time logistics strategy justification. It is a win-win for all stakeholders.
Vehicle design is another area for innovation and improvement. A truck with three side openings is yet to happen in India, with the exception of major soft drink companies for retail distribution. Vehicle designers and manufacturers claim that designing this vehicle wouldn’t be a problem and that there is no dearth of domestic talent in terms of design and fabrication. “Let the customers place orders and then see,” says one Pune-based heavy commercial vehicle manufacturer.
But the question is who will be the first to take the plunge for increased palletisation, OEMs or tier suppliers? Both of them know that the usage of palletisation means a lower incidence of damage. In addition, palletisation would result in a higher percentage of ready-to-assemble components that would, in turn, result in a faster market release of passenger cars. Notwithstanding Chep India president Pranil Vadgama’s assertion that cost is not an issue, price-sensitive Indian entrepreneurs are still reluctant to embrace palletisation. Those vendors who have been associated with Maruti Suzuki for many years look at it as a big-ticket investment and therefore look to financial assistance from the country’s top carmaker. Interestingly, auto component manufacturers that tend to collaborate with Western companies (whether technologically or financially) also see merit in investing in palletisation because the long-term returns are very high. Besides, newer players (and more are coming in) are embracing palletisation more readily to grab more business volume and make larger financial gains. With the increasing competition in the Indian market, suppliers have to go in for modern storage and movement facilities.
Hyundai Motors India, the country’s second-most important player in the passenger car sector, has gone in for 100% palletisation. Hyundai uses steel pallets and plastic bins that are fabricated according to Hyundai specifications.
According to SV N Prasad, head of production planning and control: “Palletisation plays a very important role in mass production-based plants for the easy movement of parts from one location to another, such as vendor to manufacturing plant, receipt area, lineside, and so on. Palletisation helps to avoid damages to the parts during logistics–pallets create easy retrieval of parts by the line operators assembling the car and it also helps to maintain good house-keeping in the factory.”
Ceva Logistics needs no introduction, particularly in the automotive 3PL segment. But how is it doing in India? According to Samar Nath, managing director (India and South Asia) for Ceva Freight India, much is going very well, and the company is making advances in the use of pallets.
“As far as using pallets for automotive components are concerned, our experience has been good. Pallets help in optimising the storage level and make visibility and tracking easier. For aftermarket, pallets are used to build LCLs for local trucking that, in turn, utilise space effectively and protect the cargo. Collapsible packaging is also preferred to achieve empty return efficiencies. Ceva’s range of collapsible packaging offers the automotive industry many benefits.”
In Ceva’s existing operations at an automotive facility the space utilisation ratio is about 75:25, and the material is stored as per assembly line requirements. For products that need to be repacked into small boxes (KLT) Ceva does not use pallets, opting instead for the mezzanine-shelving system.
“Local JIT material that comes into the automotive sector and certain CKD material are not palletisable due to the packing and dimensions. Palletisation in any project also depends on the product characteristics and the storage requirements,” says Nath.
By and large, carmakers look for four parameters when deciding on pallet standards: type of vehicles used in transport; the available or planned pallet storage facility in warehouses; the space available for material supply on the production line; and the size of primary packing.
To sum it up, the debate in India is no longer about ‘why?’ but ‘when’ palletisation will come into wider use. Peer pressure would certainly kick in once more large players moved towards it, and palletisation would become the norm over the years as part of the streaming of the supply chain process. Vendors wanting to survive and thrive would certainly choose it. Perhaps the time is not ripe to roll the dice, but vendors looking to get ahead of the curve would do well to measure the gamble against the success seen in other markets.