Maha Cements - Pon Pure Logistics by Venkat

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A Study report on Logistics cost at

My Home Industries Limited

(Maha Cements), Nalagonda / Vizag

Prepared by : K Venkat

Head – Business Solutions

Pon Pure Logistics P Ltd

7th July 2012

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7th July 2012

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7th July 2012

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Executive Summary

Companies now turning their attention towards the supply chain operations especially

on outbound logistics and realizes that lot of money that can be saved. The companies

often end with paying high freight cost for the shipments transported from factories to

dealers. Implementing a successful logistics program requires a better process with

proven capabilities to consolidate/optimize shipments. It is important for the

manufacturer to look internally and align the goals of the department and the goals of

the operations of the business.

Right time My Home Industries (MHIL)

started looking their process and cost of logistics

operation. Cement, being a bulk commodity, is a

freight intensive industry and transporting it

over long distances can prove to be

uneconomical. This has resulted in cement being

largely a regional play with the industry divided

into five main regions viz. north, south, west,

east and the central region. With capacity addition taking place at a faster rate as

compared to demand, prices have remained southbound, especially in the last one year.

As Transportation is a costly affair, the selling and distribution cost account for more

than 20% of sales revenue. Top companies spent huge money to carry cement to the

customers.

About 3% of the revenue is spent on inward

logistic s, while outward logistics account for 15%,

which needs to be really looked in, as the logistics

seems to very high. With the Industry showing a

downward trend in profit margins, better logistics

management proves beneficial to many of the

cement manufacturers. Hence, we were given

opportunity to explore various modes of logistics

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Executive Summary




















customers.









3%

0%

5%

10%

15%

20%

Inbound

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Executive Summary




















customers.









15%

Inbound Outbound

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that can provide a cost effective means of transportation.

Our Scope of Study includes

Best practices,

Operational efficiency,

Current costing and analysis on transportation

facility

The team consist of 4 members had taken the effort of

understanding the current process and could find solution

to the best of our experience, listed down with our various

observations, recommendations and Industry standards.

Focus on Logistics Go Ahead:

Every industry has its own efficiency levels and are trying to address in different ways.In cement per se, volumes have gone up and in spite of all the limitation, the thrust isto move towards better services with better pricing.

Before we start the process of Logistics analysis…Indian Cement Industry a Glance….!

Indian Cement Industry

The history of the cement industry in India dates back to the 1889 when a Kolkata-

based company started manufacturing cement from Argillaceous. But the industry

started getting the organized shape in the early 1900s. In 1914, India Cement

Company Ltd was established in Porbandar with a capacity of 10,000 tons and

production of 1000 installed. The World War I gave the first initial thrust to the cement

industry in India and the industry started growing at a fast rate in terms of production,

manufacturing units, and installed capacity. This stage was referred to as the Nascent

Stage of Indian Cement Company. In 1927, Concrete Association of India was set up

to create public awareness on the utility of cement as well as to propagate cement

consumption.

The cement industry in India saw the price and distribution control system in the year

1956, established to ensure fair price model for consumers as well as manufacturers.

Later in 1977, government authorized new manufacturing units (as well as existing

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Best practices,



facility


















consumption.




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Best practices,



facility


















consumption.




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units going for capacity enhancement) to put a higher price tag for their products. A

couple of years later, government introduced a three-tier pricing system with different

pricing on cement produced in high, medium and low cost plants.

The cement industry is one of the main beneficiaries of the infrastructure boom. With

robust demand and adequate supply, the industry has bright future. The Indian Cement

Industry with total capacity of 300 million tones is the second largest after China.

Cement industry is dominated by 20 - 25 companies who account for over 70% of the

market. Individually no company accounts for over 12% of the market. The major

players have been quiet successful in narrowing the gap between demand and supply.

Private housing sector is the major consumer of cement (53%) followed by the

government infrastructure sector. Similarly northern and southern region consume

around 20%-30% cement while the central and western region are consuming only

18%-16%.

The cement manufacturing industry, being one of the core industries in India, is

growing steadily due to the growth in the infrastructure operations such as Surface

Connectivity, Flyovers, IT parks, Special Economic Zones, Residential and Commercial

complexes and Malls. Domestic demand for cement has been increasing at a fast pace

in India.

Cement consumption in India is

forecasted to grow by over 25% by 2011-

12 from 2010-11.

This upward swing in the demand for

cement across the country has generated

more volume of movement of cement

across the various locations where more

logistic service providers have stepped in

to take on the business.

Irrigation, 23%

Roads, 5%

Infrastucture, 15%

Defense,4%

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18%-16%.





in India.



12 from 2010-11.







Housing,53%

4













18%-16%.





in India.



12 from 2010-11.







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Major Clusters of Cement industry in India are:

Satna (Madhya Pradesh),

Chandrapur (Maharashtra),

Gulbarga (Karnataka),

Yerranguntla (Andhra Pradesh),

Nalgonda (Andhra Pradesh),

Bilaspur (Chattisgarh),

Chandoria (Rajasthan).

Technology Up-gradation

Cement industry in India is currently going through a technological change as a lot of

upgradation and assimilation is taking place. Currently, almost 93% of the total

capacity is based entirely on the modern dry process, which is considered as more

environment-friendly. Only the rest 7% uses old wet and semi-dry process technology.

There is also a huge scope of waste heat recovery in the cement plants, which lead to

reduction in the emission level and hence improves the environment.

Utilisation Vs Price

Cement capacity utilisation has always had ahigh correlation with price. Whenever, thecapacity utilisation dropped, cement pricestrended up. In FY 10 prices fell by over 10%and the capacity utilisation rate went south.In FY 10, the cement industry faced subdueddemand growth coupled with a surplusscenario, leading to a fall in the overallcapacity utilisation rate averaging 79%. Thisled to fall in cement prices in surplus regions

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and the industry reported losses. In FY 11, the industry resorted to productiondiscipline and was able to pass on the rise in costs to consumers with rise in cementprices by 15% in FY 12 coupled with lower capacity utilization. In FY 12 capacityutilisation is estimated to have bottomed at 73% and a turnaround is expected in thecoming FY 13.

Top Companies - Average cost break up of top cement companies

ACC Limited,

Ambuja Cements Limited,

UltraTech Cement Limited,

India Cement Limited,

Shree Cement Limited,

Rain Cement Limited,

Prism Cement Limited,

Madras Cement Limited,

Birla Cement Limited,

JK Cement Limited

Freight and Distribution is accounting to almost 21% on total cost spent by these

companies. My Home Industries Limited is one among the few of the manufacturers

of industrial grade cement in Andhra Pradesh, which has the similar costing pattern.

My Home Industries Limited (MHIL)

My Home Industries, part of My Home Group, is one of the leading cement

manufacturers in South India. With three plants in Mellacheruvu (Nallagonda Dist), one

newly commissioned unit at Yalamanchili (Vizag Dist) My Home Industries has a total

installed capacity of 4.7 million tons per annum. With this, My Home Industries has

become the largest cement company in Andhra Pradesh in terms of installed capacity.

The Brands MAHA CEMENT and MAHA SHAKTHI have built a formidable reputation

for quality. My Home Industries also has a 15 MW captive power plant at Mellacheruvu

unit. My Home Industries has a 60 MW plant at Mellacheruvu which is being

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Depreciation, 7%

HR, 5%

Power &Fuel, 29%

OtherExp, 21%



ACC Limited,









JK Cement Limited













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Depreciation, 7%

RawMaterial, 17

%

Frieght /Distribution,

21%

HR, 5%



ACC Limited,









JK Cement Limited













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implemented by My Home Power. These units are set up with state-of-the art

technology.

MHIL has a joint venture with CRH Plc Ireland, the international leader in building

materials operating in 33 countries across 3500 locations. The growth and success of

CRH is founded on its exceptional commitment and capabilities. Sharing the common

vision of excellence, MHIL and CRH as one entity, is fast emerging as a leading force in

the Indian cement industry. In recognition of its quality drive, MHIL has been awarded

the ISO 9001-2000 certification.

Observation at MHIL – Good Practices / Facilities

Process / Facilities

MHIL is very conscious of the technology

used. In cement production, raw materials

preparation involves primary and secondary

crushing of the quarried material, drying the

material (for use in the dry process) or

undertaking a further raw grinding through

either wet or dry processes, and blending the

materials. Clinker production is the most

energy-intensive step, accounting for about

80% of the energy used in cement Production.

Produced by burning a mixture of materials, mainly limestone, silicon oxides, aluminum, and

iron oxides, clinker is made by one of two production processes: wet or dry; these terms refer

to the grinding processes although other configurations and mixed forms (semi-wet, semi-dry)

exist for both types. In the dry process, the raw materials are ground, mixed, and fed into the

kiln in their dry state. In the wet process, the crushed and proportioned materials are ground

with water, mixed, and fed into the kiln in the form of slurry.

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technology.

























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technology.

























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Grinding Unit at Vizag is the recent addition to

My Home Industries. It’s a Greenfield plant located at

Mulkapalli Village yelamanchili Mandal, Vizag District.

Endowed with advanced technology from Loesche,

Germany, this plant produces 15 lakh tones per annum.

Vizag plant is strategically planned to serve the eastern

markets like Odissa, West Bengal and Bihar. Clinker is

procured from Mother Plant there at Mellacheruvu. Slag

is sourced from Vizag Steel Plant and the Gypsum from

Coromandal Fertilizer plant. Clinker,Slag and Gypsum grounded in Vertical Roller Mill

supplied by Loesche, Germany.

Modern Quality Control laboratory with X-Ray

analyzer assures Maha Quality in each and every

bag of cement manufactured. Integrated

management System is being implemented to ensure

superior quality, safety and environment friendly

production.

Packing of cements is fully automated in MHIL. As the

process of cement production is completed, the packing is

mechanized to the tune of daily requirement. The special

equipments / machineries are installed to meet the day

to day packing requirements.

LOADING / UNLOADING

Finished goods (Industrial Grade Cement) is packed in HDPE

bags and loaded mechanically at the factory. Labour for

loading and unloading is very much limited and the activity

is fully automated.

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production.






LOADING / UNLOADING




is fully automated.

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production.






LOADING / UNLOADING




is fully automated.

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In order to measure cement bags on conveyors, proto control

provide these Cement Bag Counter Unit. The counter unit

comprises sensor location, bag display system (Counter) and

setting terminal selection of sensor. All these parts helps the

unit to function properly and more effectively. Hence the

accuracy of production and loaded quantities are maintained

accurately

Products of My Home Industries Limited - Cement that are produced in MHIL are:

Ordinary Portland cement (OPC): OPC, popularly known as grey cement, has 95 per cent

clinker and 5 per cent gypsum and other materials. It accounts for 70 per cent of the total

consumption.

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accurately




consumption.

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accurately




consumption.

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Portland Pozzolana Cement (PPC): PPC has 80 per cent clinker, 15 per cent pozzolana and

5 per cent gypsum and accounts for 18 per cent of the total cement consumption. It is

manufactured because it uses fly ash/burnt clay/coal waste as the main ingredient.

White Cement: White cement is basically OPC - clinker using fuel oil (instead of coal) with

iron oxide content below 0.4 per cent to ensure whiteness. A special cooling technique is

used in its production. It is used to enhance aesthetic value in tiles and flooring. White

cement is much more expensive than grey cement.

Order Processing Systems

Order Processing Systems involved the flow of information about the orders from

generation to order fulfilment. MHIL is using SAP for processing their supply chain and

dispatch requirements. The datas are maintained on-line by the respective officials.

Orders once received, is processed processed quickly and accurately through SAP. MHIL

had linked all their offices through a Wide Area Network (WAN). Electronic Data

Exchange (EDE) facilitated timely and accurate processing of orders.

Assuring high customer service level is critical for Building Materials companies to

improve customer retention and loyalty. Sales can easily, quickly and accurately,

determine pricing and costing, check production resources, as well as track and manage

quotations, contracts, deliveries & invoices – reducing sales cycle time & ultimately

increasing revenue. SAP provides a comprehensive sales order management solution to

efficiently process.

Logistics & Supply Chain

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The Team

The Despatch Team MCW has 21 members at MCW and 7 members at Yelamnchilli

plant. Apart from this the labours are outsourced, managed with optimum level.

Distribution coverage from MCW plant:

From Nalgonda :

Khamman , Krishna, Guntur, WestGodavari, Prakasam, Bhagalpur,Gajapathi, Srikakulam, Nellore,Vizianagaram, Rayauda, Burdwan,Gaya, Patna, East Godavari,Begusari, Chennai, Siwan, Bastar,Dhenkanal, Palamu, West Midapore,Koraput, Murshidabad, Kolkatta,Howrah Bhadrak, East Singbhum,Puri, Bolangir, Jajpur, Sambalpur,Balasore, vishakapatnam,Kalahandi, Ganjam, Cuttack,Khurada

From Yelamanchilli :

Balasore , Bankura, Bastar, Begusarai,

Bhadrak, Bhagalpur, Bhojpur, Bolangir

Burdwan, Chennai, Cuttack, DarbhangaDhenkanal, East Champaran, East Godavari,East Singbhum, Gajapathi, Ganjam, Gaya,Guntur, Howrah, Jagatsingahpur, Kalahandi,Hurada, Kolkatta. Joraput, Mayurbhani,Murshidabad,Muzaffarpur, Nalgonda, Nellore, Palamu,Patna, Prakasam, Puri, Ranchi, Rayagada,Sambalpure, siwan, Srikakulam,Vishalapatnam, Vizianagarm. West Godavari,West Midnapore

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The Team




From Nalgonda :






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The Team




From Nalgonda :






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Mode of Transport

Road – (Trucks & Bulkers)

Rail

Sea (Needs to be explored)

When we are entering the downside of the cycle, with profit margin coming down to

20% to 25% from 35% to 40%, better logistics management proved beneficial to many

of the cement manufactures. We understand here at MHIL is close to the industry

norms of nearly about 3% to 5% whereas the outbound is close to 15%. Hence the

need of better logistic planning is become very much essential.

As the final distributor network clusters located far away from the major consumption

centre, means the cement has to be transported over very long distances. The right mix

of transportation planning is required to have better costing

Current Trend of Despatches from Yelamanchili

Out of Total despatches made from this plan,

approx. 50% of dispatch contribution accounts to

Orissa, which is primarily catered through railways

As MHIL has arrangement with Indian Railways,through them they get daily rakes for the Orissadestinations, which is contributing 40% to 50% ofthe sales.

Till Last month Yelamanchili plant has achieved the highest dispatch of 151000 Tons permonth as against their target of 200000 Tons, which the continuous effort is being put.

Sea Transport

Today, 70% of the cement movement worldwide is by sea compared to just 1% to 2%

in India. However the scenario is changing with most of the big players, having set up

their bulk terminals. As far as cement is concerned, the costs of handling and secondary

State Mode ContributionAndhraPradesh Road 19%Bihar Road 9%Chhattisgarh Road 1%Jharkhand Road 6%Tamil Nadu Road 4%WB Road 11%Orissa Train 50%

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Mode of Transport


Rail
















Sea Transport





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Mode of Transport


Rail
















Sea Transport





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movement are very high. Although transportation

by sea is the cheapest option, unless there is right

connectivity from the port to the consuming centre

the gains are minimum.

Plants located in Coastal belts find it much cheaper

to transport cement by the sea route in order to

cater the coastal markets such as Mumbai and the

states of Gujarat and Tamil Nadu.

Sea route is the most economical mean of transport, but in India sea route is viable

only on the west coast. Sea route economical but not available across.

Rail Routes

Logistics in the cement sector affect freight costs to a large extent. The basic raw

material and the final product freight costs affects to a large extent. Checking logistics

costs is an ongoing process for the cement companies, same as the case to MHIL.

Companies are trying to reduce the costs by around 5% - 7% by optimizing the

distance of transport. We understand about 45% to 50% of the cement produced in

MHIL is being transported by the railways. Normally Road can be preferred for shorter

distances.

Currently Industry and also MHIL prefer using railway routes than roads, shrinking lead

distance (distance between factory and Market) is one of the cost reduction measures

being maintained. On an average for every 50Kg bag transported, our logistics cost

comes to around Rs.18 to Rs.25 by Road and Rs.12 to Rs.15 by the railway depends

on the distance.

Features of Rail movement:

Haul about 45% to 50% of cement.

Railways has very good system, which gives real time visibility.

On the technology front, the railways has done a great job,

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Rail Routes







distances.





on the distance.





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Rail Routes







distances.





on the distance.





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It continuous to be a socialist set-up and at the pace at which the economy is growing

the railways has limited resources. Railway have increased number of trains but the

tracks are same. It is not the railway that is slow, it is a general problem in the country.

The time taken to conceive a project and to execute that project is huge.

Railways at MHIL: As our final distributor network clusters located far away from the

major consumption centre, means the cement has to be transported over very long

distances, both the plants have railway sidings to cater majority of their requirement.

Almost 50% of their distributors are taken care through the rail movement. The Indian

railways plays a major role in transporting the cements nearer to the consumption

centre.

Rake Operations Indian Railway allots

a rake as per the requirement of MHIL,

for which the indent is being generated

by the Factory dispatch head and the

same is catered by Indian Railways

with 24 Hours of the receipt of Indent.

MHIL does normally 30 rakes per

month at both the plants

The major destinations from MCW is as follows:

To Banglaore : 5 Rakes

Chennai : 5 Rakes

Coimbatre : 1 Rake

Erode : 1 Rake

Kerala : 1 Rake

Katpadi / Vellore 1 Rake

WB11%

Orissa50%

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centre.











Chennai : 5 Rakes

Coimbatre : 1 Rake

Erode : 1 Rake

Kerala : 1 Rake


AndhraPradesh

19%Bihar9%

Chhattisgarh1%

Jharkhand6%

Tamil Nadu4%

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centre.











Chennai : 5 Rakes

Coimbatre : 1 Rake

Erode : 1 Rake

Kerala : 1 Rake


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Distribution pattern of MCW

States Contribution

Andra Pradesh 69%

Karnataka 10%

Maharashtra 1%

Pondy 1%

Tamil Nadu 18%

In this operation, the railways have fixed routes for which the wagons are allotted as

per the requirement. Each Rake will have minimum 42 wagons of 2 sizes. (BCN & BCN-

A)

BCN – 1258 Bags

BCN – A – 1318 Bags

Each Wagon will carry a weight of 62 – 65 Tons approx. Railways had also agreed for

two point delivery, the dispatch will plan the order and request for rakes accordingly.

Despatch team is planning minimum 1 rake per day with a dedicated team to monitor.

In the older system, the key was to have a godown and evacuation quantity use to be

very small. Today one rake carry 2800 MTs as against 1500 MTs earlier. Now the size

has almost doubled. Unfortunately evacuation resources have not kept pace with the

requirement. Most goods sheds are under control of the union, the fleet size has not

expanded as per the growth of the cement business. Labour is controlled by the union.

Labour availability has not increased as per the incremental volumes

Recommendations

Mechanisation can alone reduce cost by a minimum of 10%. The company could

currently evacuate 3000 tonnes by manual route from goods shed, just because the

systems are not mechanized. Going ahead labour in India will become a scare

commodity, so companies or service providers should be prepared for such eventuality

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AndraPradesh

69%

Karnataka10%

Maharashtra1%

Pondy1% Tamil Nadu

19%


States Contribution

Andra Pradesh 69%

Karnataka 10%

Maharashtra 1%

Pondy 1%

Tamil Nadu 18%



A)

BCN – 1258 Bags











Recommendations





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AndraPradesh

69%


States Contribution

Andra Pradesh 69%

Karnataka 10%

Maharashtra 1%

Pondy 1%

Tamil Nadu 18%



A)

BCN – 1258 Bags











Recommendations





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in coming years. The industry will have to join hands and to take up a pilot project. It

has to be collaborative effort, so that this will help in fast turn around.

Also at the plants, the system of tracking the details of the wagon entry is done

manually, they incur on an average of 1 to 3 hours additional and in turn the request is

made to Railways for waiving the halting charges Even they get only 50% on the waiver

request. Hence the system of monitoring the entry & exit is very much essential.

Road Transport

The Fleets at Maha cements are on dedicated model basis. We have here company

Owned Vehicle as well as market vendor attached dedicated to this operation. As the

raw materials are brought to factory within 50 to 100 KMs radius, the return trip of the

fleets is only empty run. Fleets are utilized to carry finished products factory to it’s

dealers all across parts of Orissa, AP, Bihar, Tamilnadu. Roads are cheaper upto a lead

of 300 Km, over which it is railways.

Logistics cost is going to come down provide one is on the right track. If we chases the

cost in isolation by just working on cost reduction, the cost cannot be reduced in the

inflationary world. The process of cost negotiations of olden days are over now. Under

negotiation, we arrive only at the lowest quoted price and was not content assumingly

to have reduced the cost. Here we arrive only the best negotiated price not at a best

cost.

Today the concept of negotiations is no more prevalent. If one wants to work the truck

freight to a particular destination, the right cost should take into account all the

statuory duties, all the toll taxes, fuel cost and all other allied cost, cost of vehicles,

turnaround efficiency, everything. These known efficiency parameters should be arrived

at the right price. Here cost can be reduced only by increasing the efficiency.

The bottleneck in road transport is a concern now on roads. There has been a

progressive in the toll rates and the number of points. On a stretch on 200 KM there is

5 to 6 toll points, which hinders speed. This has resulted in increased cost and time.

There is an urgent need for high tech toll booth.

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Road Transport












cost.










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Road Transport












cost.










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The study is to purpose an operating cycle where Finished goods are moved from

factory to dealers. These drop-offs are to be regular deliveries where each truck will

carry and unload requirements of 1 (minimum) to 2 (maximum) destinations during

every Forward trip. The vehicles run empty during the return trip to the factory.

On an average the MHIL operates 75 – 100 trucks at Yelamanchilli and 125 – 150

Trucks at Melacheruvu per day.

Turn around Time :

As we do not have the current system of Monitoring the turn around time of eachvehicles, the datas are to be established. But we understand during our visit to theplant the vehicles are loaded within 45 minutes at the plant, as it is automated loadingsystem

To improve the turn-around time of the vehicle, the robust system of monitoring andreview mechanism to be established. The detailed workings are also suggested in thecoming sessions.

Freieght :

At present MHIL operates its Supply-chain through various Transport operators.

At MCW, We have 21 operators and We have 9 Operators.

This ranges from Small time vendors to Major players,

ranges from 7 Vehicles to 70 Vehicle owners. Apart from

this, MHIL has got their own fleet strength of more than 100

to support their operations.

They Operate 10 Wheeler, 12 Wheeler, Tankers

10 Wheeler takes 17.5 MTs / Trip


Tankers takes 25 MTs / Trip

Currently the operators are wedded with agreement and they are given the routes with

rates fixed for the destinations.

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Turn around Time :



Freieght :













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Turn around Time :



Freieght :













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Contribution of Movements:

Out of Major Locations served from both the plants almost 50% of the volumes areserviced to the locations less than 300 KMs.

20% are between 300KMs and 500 KMs

15% is mainly contributing to Chennai and around in the greater than 500 KMs range.

Remaining 15% is spread across various destination which is again falling in the rangeof 500KMs to 800 KMs.

The Bench Marking freight cost is given below for both 10 Wheeler and 12 Wheeler. It isalways better 12 Wheeler to major locations, so that we will have cost benefit as ourvolumes are high.

The Trucking Operation (Suggested Operations):

Truck may be either owned by MHIL / Dedicated from Vendors

Two drivers will man each truck to manage a average run of 700 KMs per day.

Truck will be on Road for 20 Hours.

Process Controls

MHIL has to frame an operations procedure for managing the own fleet/dedicated

fleets. Some of the key areas addressed in the Process document are listed below.

Process

Documents maintained / updated

Forward TripTrip sheets, Daily pre-alerts, Goods Consignment note,Transport manifest, Vehicle log book, Vehicle check list,Vehicle History book

Accident / Breakdown Truck detention report

Maintenance / Repairs of Company ownedvehicles

1. En-route Maintenance

2. Periodical Maintenance

3. Break Down Repair

Maintenance schedule register, Vehicle History book,Tyre card

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Process Controls



Process









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Process Controls



Process









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4. Tyre Management

5. Purchase of new Tyres.

6. Remolding of Tyres

Statutory Requirements Vehicle check list, Vehicle Log book, Vehicle History book,Statutory check list

Process Monitoring 5 eye reports

Process Measures

1. Vehicle wise Profitability

2. Vehicle Halting

3. Accident Rate

4. KM run per month

5 eye reports

Components of Freight Cost – Own Vehicle Operation

Enroute Exoenses17%

Toll11%

Fixed Cost18%

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4. Tyre Management





Process Measures


2. Vehicle Halting

3. Accident Rate

4. KM run per month

5 eye reports


Fuel30%

Tyre7%

R&M4%

Salary9%

Bhatta4%

Enroute Exoenses17%

Fixed Cost18%

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4. Tyre Management





Process Measures


2. Vehicle Halting

3. Accident Rate

4. KM run per month

5 eye reports


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Mark Pricing – For 10 Wheelers: (Vehicles are less than 4 years)

Distance Upto 300 Kms 300 ~ 500 Kms > 500 Kms*Assumptions One way Empty One way Empty One way EmptyTonnage 17.5 17.5 17.5Avg Kms per trip 600 1,000 1,600Fuel Average KMs / Ltr 5 5 5Vehicle on Road 22 22 22Trips Per Month 18 11 10Average Kms / Month 11,000 11,000 16,000

Fuel Requirement / Month 2,200 2,200 3,200Current Fuel Price 44 44 44

Fixed Expenses / Annum 699,567 699,567 699,567(Statutory exp- Including EMI)Operating Cost

Fuel cost 96,800 96,800 140,800

Tyre cost 23,222 23,222 33,778

Repairs and maintenance costs 12,100 12,100 17,600

Driver salary @ 15000 / 2 drivers 30,000 30,000 30,000

Driver Bhatta @ 250 per head 12,500 12,500 12,500

Other Expenses 25,000 25,000 25,000Communication cost 1,500 1,500 1,500

Toll Expenses 36,000 33,000 40,000

En route miscellaneous expenses 27,000 16,500 25,000

Total Operating Cost / Month 264,122 250,622 326,178

Fixed Cost / Month 58,297 58,297 58,297

Total Cost / Month 322,419 308,919 384,475Cost / Ton for Return Empty 1,024 1,605 2,197

Add : Vendor Margin - 10% 102.36 160.48 219.70Cost / Ton 1,125.91 1,765.25 2,416.70

*The cost for greater than 500 Kms is considered maximum for 800 Kms run.

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Fuel cost 96,800 96,800 140,800

Tyre cost 23,222 23,222 33,778





Toll Expenses 36,000 33,000 40,000



Fixed Cost / Month 58,297 58,297 58,297




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Fuel cost 96,800 96,800 140,800

Tyre cost 23,222 23,222 33,778





Toll Expenses 36,000 33,000 40,000



Fixed Cost / Month 58,297 58,297 58,297




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Bench Mark Pricing – For 12 Wheelers: (Vehicles are less than 4 Years)

Distance Upto 300 Kms 300 ~ 500 Kms > 500 Kms*Assumptions One way Empty One way Empty One way EmptyTonnage 22.0 22.0 22.0Avg Kms per trip 600 1,000 1,600Fuel Average KMs / Ltr 4 4 4

Vehicle on Road 22 22 22

Trips Per Month 18 11 10

Average Kms / Month 11,000 11,000 16,000Fuel Requirement / Month 2,750 2,750 4,000

Fixed Expenses / Annum 783,567 783,567 783,567

(Statutory exp- Including EMI)

Operating Cost

Fuel cost 121,000 121,000 176,000

Tyre cost 23,222 23,222 33,778

Repairs and maintenance costs 12,100 12,100 17,600Driver salary @ 15000 / 2 drivers 30,000 30,000 30,000Driver Bhatta @ 250 per head 12,500 12,500 12,500Other Expenses 25,000 25,000 25,000Communication cost 1,500 1,500 1,500Toll Expenses 36,000 33,000 40,000Enroute miscellaneous expenses 27,000 16,500 25,000Total Operating Cost / Month 288,322 274,822 361,378Fixed Cost / Month 65,297 65,297 65,297Total Cost / Month 353,619 340,119 426,675Cost / Ton for Return Empty 893 1,405 1,939Add : Vendor Margin - 10% 89.30 140.55 193.94

Cost / Ton 982.28 1,546.00 2,133.38*The cost for greater than 500 Kms is considered maximum for 800 Kms run.

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Operating Cost

Fuel cost 121,000 121,000 176,000

Tyre cost 23,222 23,222 33,778



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Operating Cost

Fuel cost 121,000 121,000 176,000

Tyre cost 23,222 23,222 33,778



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Bench Mark Pricing – For 10 Wheelers: (Vehicles that are beyond 4 years)

Distance Upto 300 Kms 300 ~ 500 Kms > 500 KmsAssumptions One way Empty One way Empty One way EmptyTonnage 17.5 17.5 17.5Avg Kms per trip 600 1,000 1,600Fuel Average KMs / Ltr 5 5 5Vehicle on Road 22 22 22Trips Per Month 18 11 10Average Kms / Month 11,000 11,000 16,000Fuel Requirement / Month 2,200 2,200 3,200Current Fuel Price 44 44 44Fixed Expenses / Annum 123,567 123,567 123,567(Statutory exp- Including EMI)Operating Cost

Fuel cost 96,800 96,800 140,800Tyre cost 23,222 23,222 33,778Repairs and maintenance costs 13,750 13,750 20,000Driver salary @ 15000 / 2 drivers 30,000 30,000 30,000Driver Bhatta @ 250 per head 12,500 12,500 12,500Other Expenses 25,000 25,000 25,000Communication cost 1,500 1,500 1,500Toll Expenses 36,000 33,000 40,000

Enroute miscellaneous expenses 27,000 16,500 25,000

Vendor charges 30,000 30,000 30,000


Fixed Cost / Month 10,297 10,297 10,297

Total Cost / Month 306,069 292,569 368,875

Cost / Ton 972 1520 2108*The cost for greater than 500 Kms is considered maximum for 800 Kms run.

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Vendor charges 30,000 30,000 30,000


Fixed Cost / Month 10,297 10,297 10,297

Total Cost / Month 306,069 292,569 368,875


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Vendor charges 30,000 30,000 30,000


Fixed Cost / Month 10,297 10,297 10,297

Total Cost / Month 306,069 292,569 368,875


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Distance Upto 300 Kms 300 ~ 500 Kms > 500 KmsAssumptions One way Empty One way Empty One way Empty

Tonnage 22.0 22.0 22.0

Avg Kms per trip 600 1,000 1,600

Fuel Average KMs / Ltr 4 4 4Vehicle on Road 22 22 22


Average Kms / Month 11,000 11,000 16,000

Fuel Requirement / Month 2,750 2,750 4,000



Operating Cost

Fuel cost 121,000 121,000 176,000

Tyre cost 23,222 23,222 33,778




Other Expenses 25,000 25,000 25,000

Communication cost 1,500 1,500 1,500Toll Expenses 36,000 33,000 40,000

Enroute miscellaneous expenses 27,000 16,500 25,000Vendor Margin per month 40000 40000 40000


Fixed Cost / Month 10,297 10,297 10,297

Total Cost / Month 340,269 326,769 414,075

Cost / Ton 860 1,350. 1,882*The cost for greater than 500 Kms is considered maximum for 800 Kms run.

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Tonnage 22.0 22.0 22.0








Operating Cost

Fuel cost 121,000 121,000 176,000

Tyre cost 23,222 23,222 33,778




Other Expenses 25,000 25,000 25,000




Fixed Cost / Month 10,297 10,297 10,297

Total Cost / Month 340,269 326,769 414,075


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Tonnage 22.0 22.0 22.0








Operating Cost

Fuel cost 121,000 121,000 176,000

Tyre cost 23,222 23,222 33,778




Other Expenses 25,000 25,000 25,000




Fixed Cost / Month 10,297 10,297 10,297

Total Cost / Month 340,269 326,769 414,075


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Recommended Loading Pattern:

Locations Priority / Preference500 - 800 Kms 1st300 - 500 Kms 2nd< 300 Kms 3rd

The above loading pattern may be followed for increasing the effective turn around timeand increase in productivity.

Recommended Transit Time:

Transit Time Hours / Day Kms / Day Transit Time800 Kms 20.00 700 1 day500 - 700 Kms 20.00 700 20 Hours300 - 500 Kms 500 15 Hours100 - 300 Kms 300 9 Hours

< 100 Kms 3 Hours

Recommendations:

KEY COMMERCIAL TERMS

The Contracts with the vendors may have to be looked into the various aspects. The

following are the recommendations may be looked into while contracting the vendor

1. Contract Period : The contract will be valid for a longer period (may be 4 to 5

years) with an exit clause requiring 3 months notice.

2. Escalation clauses : Fuel costs comprise a major portion of Freight costs. The

contract is to contain a fuel escalation clause whereby any increase in Diesel prices

will automatically increase the Variable Billing rate. We can use the below formula to

quantify the increase in commercials owing to increase in fuel cost.

New Freight rate = Old Freight rate

+ [Old Freight rate x 40% x (Old Diesel Price – New Diesel Price)]

New Diesel Price

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< 100 Kms 3 Hours

Recommendations:












New Diesel Price

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< 100 Kms 3 Hours

Recommendations:












New Diesel Price

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Other costs are to be revised on an annual basis. MHIL can propose the rate ofincrease on the basis of actual costs incurred every year and will be mutually agreedupon.

3. Operational KPI : We recommend MHIL should include KPIs for the vendors in the

agreement itself and the respective incentive system may be announced based on

the exceeding performance. The following parameters may have to be incorporated

in the KPI measures.

KPI for Transport Vendors

Transit ReliabilityTransit AccuracyMaximum No of trips per monthDistance Covered per monthPOD submissionVendor Discipline

4. MHIL requires Proof of Delivery to be accompanied with every invoice of the

vendor. This obtained at unloading point by Vendors by means of an

acknowledgement on the Goods Consignment Note. MHIL has to ensure the POD

is collected before the next trip is engaged.

5. Also MHIL will have to meet the vendors once in a month to review their

performance and to understand the issues to have better communication and

better improving the service.

RISK ASSESSMENT

To mitigate various risk factors, which may be faced during operations, separate

procedures have been formulated to ensure

Safety of vehicle and cargo

Maximization of Productivity

Proper and Timely Maintenance and upkeep of vehicles

Fulfillment of Statutory obligations

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RISK ASSESSMENT







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RISK ASSESSMENT







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Besides implementation of above Procedures, MHIL should insist vendors to install aGPS device on each vehicle, thereby giving us the scope to extend Customer servicearea by providing real-time facilities like

Track individual vehicle position.

MIS / Cargo reports

En-route Communication with Drivers.

Computerised Environment : Logistics cost is going to come down

a. Efficiency

b. Technology

c. Mechanisation

d. But not the least, person should know the right cost of operation.

There has to be organized movement of transport. Every truck coming into the factory

should be logged in system, When they go out and where it is assigned to go should

also be tracked. So that need and useage will be recorded. In-between we have

brokers/drivers are in this field. They will make money by non-visibility of information.

That cost will be unnecessarily borne by the company.

Make every information of transportation is visible. Let us have full proof TMS system in

place.

General Observations:

Enthusiastic & Dedicated Work force.

House keeping levels are good.

Staff welfare & People oriented management

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MIS / Cargo reports



a. Efficiency

b. Technology

c. Mechanisation








place.





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MIS / Cargo reports



a. Efficiency

b. Technology

c. Mechanisation








place.





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Over All Recommendations:

Route Planning & Scheduling to be strengthend.

Exploring the possibilities of Operating Sea route, so that cost will be much

cheaper.

The review mechanism to be strengthened, so that more value additions will take

place.

The pricing structure may be re-looked in such a way the vehicles are available

for lesser price.

Needs to have robust SOP, Visual displays on order management.

Morning meeting on dispatch planning is required to improve further.

Vehicle Utilisation and Vendor service level monitoring is now need to be

implemented.

Needs to put continuous efforts on logistics activities across plants to improve

efficiency and productivity better.

Computerised tracking of vehicle movement -

Conclusion

We would like to thank the entire team for this opportunity provided to us, to extentour support in improving the operations as well as service parameters. We lookforward your long term association.

Logistics cost reduction cannot be the sole objective and seen in isolation by the company.

The most important is the service….! At the end of the day, if one is unable to serve thecustomer, he will never be in the industry…

Thank You…!

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cheaper.


place.


for lesser price.




implemented.




Conclusion




Thank You…!

27




cheaper.


place.


for lesser price.




implemented.




Conclusion




Thank You…!

Maha Cements - Pon Pure Logistics by Venkat

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