Tata’s vehicle logistics are changing; from transporting trucks on trailers to providing milkrun deliveries to rural dealers, Christopher Ludwig talks to Prem Verma about the current and coming outbound network in India.
Prem Verma, the man responsible for delivering Tata Motors passenger cars and commercial vehicles, is fluent in logistics, able to describe everything from the minutiae of distribution details to how the industry can enhance the Indian economy. He traces the crowded roads, railways and distribution hubs of a network spanning the entire sub-continent, while contrasting India’s logistics developments with those of China, the US and Europe – often making his case with an almost encyclopaedic inventory of statistics and macroeconomic figures.
He points out, for example, that while the Indian Railways carries nearly as many passengers per kilometre as does the Chinese rail network, for freight tonnage it manages only one-fifth as much as China. Verma also compares the railways’ growing but small 8% share of vehicle logistics in India to the 60-70% share common in the US or Germany. Likew ise, he points out that while India already faces truck driver shortages with a current fleet of around 3m drivers, demand is set to increase to nearly 5m drivers by 2015.
Verma, the chief executive of Tata’s vehicle logistics subsidiary, TML Distribution Company (TMLD), knows better than anyone the local difficulties of India’s infrastructure and logistics market. But he has aspirations for Tata and the wider Indian automotive logistics industry to attain a higher standard of efficiency. It’s not just a matter of pride vis-à-vis other big economies – Verma recognises that logistics needs to develop if the Indian economy and automotive industry are to flourish and compete globally.
Again, he has figures to back his claims: if Indian logistics costs could be brought down from a current 13% of gross domestic product to 9%, the annual savings would be 2,000 billion rupees ($36 billion), which would help make products and exports more competitive.
For the domestic market, growth will require new logistics services to match demand, particularly in fast-growing rural areas. “Serving the demand of tier two and tier three cities is a challenge which needs thinking beyond traditional distribution patterns,” Verma says.
Likewise, increasing multimodal transport is a strategic imperative for Verma, rather than merely a chance at cheaper transport. “Anything less than 20% movement [of vehicles] by the railways by 2020 could impact the transportation of vehicles to consumption centres and in turn impact auto’s planned growth trajectory,” s ays Verma.
Clearly, some necessary changes must come from the government, such as the long awaited goods and service tax (GST) – a central tax that would eliminate many of the country’s current checkpoints and duties at state borders. Other developments will come from industry collaboration, such as working with the Society of Indian Automobile Manufacturers on railway wagon designs.
Still more must come from the development of logistics service providers, who Verma identifies as having tremendous opportunity in an expanding Indian logistics sector valued at around Rs. 4,000 billion. “With logistics now being recognised as a crucial part of the supply chain and an important tool for getting competitive advantages, the trend is more towards getting the services of professionals,” says Verma.
Finally, each carmaker must clearly advance its own initiatives, and Tata, India’s largest automotive manufacturer, has shown a willingness to lead in logistics under Verma’s direction. For example, although commercial vehicles in India have typically been driven to customers using their ‘own power’, Tata is now transporting truck chassis with the use of specialised carriers. For distribution to rural cities, Tata has also developed a milkrun system for the Nano, helping dealers with low inventories to replenish stock quickly. Tata has also taken the lead in vehicle tracking by rolling out a ‘portal’ system that allows dealers, logistics providers and the sales team to monitor supply chain movements.
Christopher Ludwig: How would you describe Tata’s distribution strategy? Do you move direct to dealer or do you have a hub-and-stockyard approach?
Prem Verma: With geographically dispersed manufacturing bases, a comprehensive, diverse and rapidly growing product range and an ever-widening network, it is essential for Tata Motors to have a varied distribution strategy for its products. As we have one of the widest ranges of products in the industry, our strategy revolves around balancing service between factors like lead-time and inventory, demand patterns, order quantity and frequency.
Passenger cars and utility vehicles (UVs) are billed directly from the plants and transported to dealers directly, except for those moved through ‘transit warehouses’, which are moved by milkrun to dealers (see box on p20).
Most heavy-and medium-sized commercial vehicles are routed through state warehouses across the country called regional stockyards (RSOs), from which the vehicles are billed to the dealers. This provides flexibility in the supply chain, facilitates shorter lead times in order fulfilment and rationalises dealer inventory. Small commercial vehicles (SCVs), such as the Ace and Magic family, are also billed directly from the Pantnagar and Dharwad plants to dealers, except for a small portion routed through RSOs.
CL: Are you moving a large percentage of vehicles that are already sold, or are you moving mainly unsold stock?
PV: As commercial vehicles are routed through distribution centres, vehicles are moved without confirmed orders, which means that sales planning plays an important role in ensuring the availability of adequate stock at each RSO. Under this set up, our order-to-delivery cycle has been reduced significantly and we are able to serve the customer within two-to-three days, in line with customer expectations.
Cars, SCVs and UVs are billed directly from the plants. In this case, we constantly monitor the order-to-delivery cycle at each stage of execution. Plant teams monitor the pending orders backed by payment and vehicles are billed and dispatched as per the same. At any given point, dealers have the information about the whereabouts of the trailer with the expected time of arrival via our track-and-trace system (see box on p24).
Quite a few of Tata’s dealers for commercial vehicles and passenger cars are also responsible for transporting their own vehicles. We encourage this because dealers can prioritise their dispatches according to their convenience and available capacity.
Moving trucks on specialised trailers
CL: Are commercial vehicles transported using trailers or are they driven to end customers?
PV: Light, medium and heavy commercial vehicles are traditionally moved by ‘ow n p ower’ in India. This means that by the time a customer gets the ‘new’ vehicle it has driven several hundred kilometres or more depending upon the distance between the plant and distribution centre. Although all these vehicles go through the rigorous process of checking and PDI at each stage, the customer still doesn’t get the feeling of a brand new vehicle when he looks at the odometer showing 1,000km or so. But the emerging trend is now to transport commercial vehicles through customised trailers. This will not only improve the quality of the vehicle at the time of delivery, but also ensure less congestion on roads and less pollution. There is also a shortage of skilled and experienced drivers at the same time that demand for skilled drivers has gone up substantially. This mode of chassis transportation will help contain the shortage to a certain extent.
CL: How long has Tata been using trailers and has this been rolled out to your entire network?
PV: Tata Motors was the first to initiate this project in India in 2009. While at that time it did not pick up the desired momentum, the company is switching the movement of chassis on specialised carriers in a phased manner. Tata has a very aggressive plan to use this mode of transport, however capacity constraints at body builders could mean it will take another two years to shift the entire volume on these trailers.
CL: Has the switch to using trailers for commercial vehicles created more backhaul inefficiencies in Tata’s network?
PV: Being specially designed for the transportation of commercial vehicles, the usage of such trailers for other cargo movements are limited and since there is less volume compared with cars, it can lead to more empty hauls. However, Tata Motors faces less of an issue with empty hauls compared to others, thanks to its geographically spread network of plants, body builders and stockyards, which gives it an advantage in terms of maximum utilisation of trailer capacity (see box on p20). Also Tata’s range of products – from light-to-heavy trucks – gives it another advantage in terms of combining various models to maximise trailer utilisation.PV: Being specially designed for the transportation of commercial vehicles, the usage of such trailers for other cargo movements are limited and since there is less volume compared with cars, it can lead to more empty hauls. However, Tata Motors faces less of an issue with empty hauls compared to others, thanks to its geographically spread network of plants, body builders and stockyards, which gives it an advantage in terms of maximum utilisation of trailer capacity (see box on p20). Also Tata’s range of products – from light-to-heavy trucks – gives it another advantage in terms of combining various models to maximise trailer utilisation.
A balanced network
TMLD was established in 2008 with Verma at its head. Since then, the company has taken over vehicle logistics operations for passenger cars and soon after commercial vehicles at Tata plants in Pune, in the state of Maharashtra. Later it took over outbound operations at plants in Pantnagar, Uttarakhand; Sanand, Gujarat and, in March 2012, Dharwad, Karnataka. Tata’s plants in Jamshedpur and Lucknow will be next, while TMLD also plans to take over end-to-end distribution of exports, as well as distribution of spare parts.
According to Verma, operations from Dharwad and Sanand have helped Tata strengthen its network, as it is now the only OEM in India providing loads to logistics providers from the north (Pantnagar), west (Pune and Sanand) and south (Dharwad), allowing them to better match return loads and for Tata to standardise service. “
As far as possible we have tried to have common transporters for all four plants which, besides solving their problems of empty hauls, has also given us the fl exibility to have better commercial terms and improved services,” says Verma. Along with outbound logistics operations at these plants, TMLD also manages invoicing and yard management operations at Tata’s 23 commercial vehicle stockyards across India, and four ‘transit warehouses’ for the passenger car business.
The latter are common stockyards for various dealers, from which vehicles are moved for fi nal delivery on demand. “Besides helping to improve operational efficiency, [transit warehouses] have also helped in reducing physical inventory at dealerships,” says Verma. “They have limited incidents of stock-out situations at dealerships as they help to service demand at shorter notice.”
Critically, these transit warehouses can be converted into centralised warehouses when the GST eventually comes into force, says Verma. TMLD will add more of these stock points in future, including one for dealers in the northeast at Guwahati, a location used by almost all carmakers for onward deliveries. The town is also connected by rail to various parts of the country.
For rail, Tata now loads vehicles from plants in Pune, Sanand and Pantnagar, from where they are sent on selected routes including to Guwahati, Hyderabad, Bangalore, Salem and Chennai. While Verma admits there are more empty backhauls in eastern India since it lacks factories, Tata has recently started using more rail to the region, including to Kolkata and Bhubaneswar.
The need for more rail transport
CL: How would you describe progress in rail movements?
PV: Capacity constraints and a lack of priority for the auto segment have confined the movement of vehicles by the railways to some specific routes only, w ith a low share compared to advanced economies. We at TMLD see movement by rail more as a strategic decision than a mere operational one. We have increased our share with the railways significantly in the last three years and today we are one of the largest users for auto movements.
CL: What needs to happen for the railways’ share of vehicle logistics transport to rise in the medium term?
PV: In spite of constraints, most companies also see the railways as a preferred transportation mode for the future, particularly with the introduction of the GST regime. The railways score very high on parameters such as reduced transit time and damages. While unmatched by other modes in these areas, it needs to improve on many other fronts to become the most efficient way of transportation. Other than its lack of capacity for vehicles, the railways lack parking spaces with proper loading facilities, and suffer from poor lead times and goods safety issues.
But government reforms on policies relating to auto hubs and freight are clear indications of things to come. Thanks to various initiatives, the railway auto share has improved from 2% to 8% in last three years. However, anything less than 20% movement by 2020 could impact the transportation of vehicles to consumption centres and in turn impact auto’s planned growth trajectory.
CL: Is Tata using containers to move vehicles, either by rail or other modes?
PV: The movement of autos through containers in India is at its nascent stage and not used very much. They are more useful for sea or inland water modes, both of which, unfortunately, are not very popular for domestic consumption. For the last three years, Tata Motors has been using containers for moving small commercial vehicles like the Ace for exports, but the numbers are limited. Container loading is done within the plant and the boxes are then trucked to nearby railway hubs, where they move directly to the port.
New distribution patterns for emerging customers
CL: What measures has Tata taken to improve service to emerging customers in rural areas and tier two or three cities?
PV: Modern retail is expected to grow by a whopping 50-60% per annum in India’s tier two and three cities over the coming years, compared to only 35% in tier one cities. Growth in automobile sales in these areas is also expected to outpace the metros. No company can afford to ignore this development.
This emergence presents new challenges for the auto supply chain in India. Since such rural demand is geographically widespread with smaller order quantities, it requires different approaches.
TMLD’s strategy has been to execute such orders as priority and to deliver the goods on time using a milkrun mode. In the last year, we have appointed Nano exclusive dealers, located primarily in tier two and tier three towns, whose business model is based on low inventory and almost work on a replenishment basis. All their demands are met through milkrun routes.
CL: Could you see extending such a milkrun model to other manufacturers?
PV: With more and more organisations entering rural markets and appointing direct dealers, the collaborative route could come into play in case they want to service these markets in a cost effective manner.
The development of LSPs
CL: How would you characterise the development of finished vehicle logistics service providers for Tata?
PV: The geographic coverage and service offerings of the major LSPs have expanded considerably, giving them an edge over individual companies in economies of scale. It also makes sense for OEMs to outsource more value-added services in logistics, such as warehousing, inventory management, pre-delivery inspection or invoicing, which the major providers have a good chance at capturing. The trend is already towards consolidation.
CL: Is Tata exploring any potentially new areas for outsourcing?
PV: Ya r d m a n agement of all our commercial vehicle and passenger cars plants has been outsourced to third parties and we have initiated a pilot to outsource the PDI activities at the plants as well.
CL: Nano distribution was outsourced to TCI as a 3PL provider. How successful has this been?
PV: TCI was appointed the sole provider for distribution of Nano cars by road and rail from the time we started its distribution. After some initial teething problems, which every business undergoes, things have settled down completely.
We can call it a good learning experience for both of us, and perhaps more so for Tata Motors since when we appointed TCI as the exclusive 3PL, it went against the conventional wisdom of having many transporters to move your cars to every nook and corner of the country. Looking back, we can say with conviction and satisfaction that it was a wise decision, considering the comfort level we have with TCI now in outbound movement and as part of our overall strategy.We have also outsourced yard management activities of our Sanand plant to TCI.
Tata Track and Trace
Verma identifi es that one of the most ineffi cient areas in logistics for India had been tracking vehicles. “Once the goods were dispatched, they were totally at the mercy of the truck driver as to how and when he delivered the goods,” says Verma. “Today, the sharing of information has become more critical than before as the customer wants all the details related to his material. The customer might still be okay with a delayed delivery backed up by advance information rather than a timely delivery without any prior visibility.”
Tata has thus developed a tracking system, called Portal, available to all supply chain stakeholders including Tata’s dispatch team, dealers and logistics providers, allowing each to plan according to the current status of vehicles in the supply chain. The system provides a dashboard view with updated information on when exactly releases and pickups occurred, trailers that are en route, expected delivery times and any delays or disruptions. The system also includes information on the processing status of a carrier’s invoice and any reasons for deductions.
Tata’s ERP system sends data and release information on invoiced vehicles to the Portal. Once a carrier picks up the vehicle, it must update the system manually at key stages of the journey, including reporting any delays. TMDL has currently decided to maintain a manual system rather than use a satellite method such as GPS to track location, in part for security reasons.
“While the use of location information from GPS can complement the Portal by proving real-time locations, there are issues related to the confi dentiality and security of the data provided by service providers,” says Verma. “There needs to be either an agreement among the OEMs that data is open to everyone or the regulatory framework should be so strong that service providers are bound and deterred by the confi dentiality clause.”
However, Tata has recently launched a new telematics and fl eet management service, FleetMan, for its commercial vehicles, which it plans to integrate into Portal for automated location and notifi cations. “We plan to use the platform more effectively by interfacing Portal with FleetMan to deliver dynamic and automated location information collection and dissemination,” says Verma.
CL: Are you using any global logistics providers for outbound services within India?
PV: While we would not be averse to engaging with global providers, despite the huge perceptible potential, unfortunately not many have taken the lead in setting up a shop here in a real manner. They will really need to provide differentiation to what is being offered now to crack [the market], as otherwise they will also get termed as ‘sophisticated transporters’.
On the road
CL: Does Tata use a standard truck length in India? Are you cautious about the potential for the central government to adopt an 18-metre long truck, as did the state of Haryana?
PV: There are various types and styles of trailers plying the Indian roads and though anyone can claim to be taking a moral high ground by saying that they are abiding by the law of the land, we all know that there are no clear guidelines for these carriers and you are left at the mercy and interpretation of various state authorities. The absence of clear guidelines on the regulatory front limits innovation in equipment, tooPV: There are various types and styles of trailers plying the Indian roads and though anyone can claim to be taking a moral high ground by saying that they are abiding by the law of the land, we all know that there are no clear guidelines for these carriers and you are left at the mercy and interpretation of various state authorities. The absence of clear guidelines on the regulatory front limits innovation in equipment, too.
In spite of this, more and more carrier manufacturers are tying up with foreign manufacturers to build better trailers with advanced technology. These trailers are being planned to accommodate four-wheeler models but will also be able to transport two-wheelers to either reduce the empty hauls or to collaborate with others for a combined load.
CL: You’ve spoken passionately about driver conditions, training and support. What is Tata doing to improve safety and quality among drivers?
PV: A lack of training and adverse conditions make drivers prone to accidents. India has only 1% of the global vehicle population but one in every ten road-related deaths across the world is reported from India.
At TMLD we are not only concerned about the safety of our goods but are equally concerned for the safety of persons like drivers, co-drivers, supervisors, yard managers and warehouse operators. Last year we started an initiative for drivers called ‘We Care For You’, which included not only defensive driving and operational skills but also holistic developments, including a separate health module. The drivers were made to feel an important link in our supply chain and certificates were issued signifying their participation.
We have so far trained 6,000 drivers at various plants and we plan on training another 4,000 by March 2013. The drivers and carriers have appreciated this initiative and the majority of the participants have requested that such programmes take place once a year with a further emphasis on the health module.
CL: How do you think the eventual introduction of the GST will impact Tata’s vehicle logistics?
PV: The GST will be a major step towards a more efficient, hub-and-spoke delivery network with the use of regional or centralised warehouses. The GST is expected to simplify many existing rules, which would streamline inter- and intra-state movements by avoiding regulatory checkpoints. This new regime will promote giant warehouses, with their locations driven by operational efficiency rather than regulatory requirements. Indeed, Tata’s transit warehouses are a step towards that and can be converted into mother warehouses in a GST scenario.
This new structure may give rise to 3PL-operated, multi-brand warehouses to improve secondary transportation to dealers. The bulk movement from plants to these warehouses should also encourage more rail, sea and multimodal transportation.
CL: Does carbon reduction play a specific role in your vehicle logistics? Will it increase in future?
PV: We a r e v e ry cognisant about the environment. As mentioned, Tata Motors is one of the largest movers of vehicles by rail in India and we would like to improve on the same. We would be open for movement by sea, especially when India enters the GST era, and there are likely to be more bulk movements from the plants to the mother stockyards and distribution centres.
Even now we are doing bulk movements as part of our hub-and-spoke distribution model, especially to northeast dealers from Pantnagar by rail, as well as the first transit leg from Sanand. The milkrun facility that we have implemented is also environmentally friendly as it increases trailer utilisation. Finally, the movement of chassis on trailers – which will substantially increase our logistics cost – is another big step Tata is taking in contributing to improving the environment and reducing emissions.