FROM MAGAZINE: Evolving solutions & enduring relationships

The change of its name from TVS Logistics Services to TVS Supply Chain Solutions (TVS SCS) was an important one. TVS SCS has become an integrated service provider, offering the entire realm of supply chain solutions. In an interaction with Reji John and Blessy Chettiar, R Shankar, CEO (India), TVS SCS, articulates about the evolutionary process in the 3PL freight space, need to reduce cost of logistics, consolidation in the supply chain and the role of automation in business.

What was the rationale behind changing the branding from TVS Logistics to TVS Supply Chain Solutions?
There are two to three reasons why we changed the name. One, we were globally anyway known as TVS Supply Chain Solutions (TVS SCS). Only in India we were still holding on to the name that we had earlier. We moved to more than just providing logistics services. Initially there were transporters, warehousing companies, clearing and forwarding (C&F) agents and godowns. Then 3PLs like us came into the picture. We started providing logistics services under what we call as key performance indicators (KPIs) or service level agreements (SLAs); going by what outcomes we had to do versus what the customer wanted. It was not a transactional outsourcing, but meant to deliver a certain value to the customer. We had to find solutions in all dimensions like cost, quality and delivery. We had to be better off than what the customer would have done by themselves.
As we moved up in this ability to deliver things, we also went about globally acquiring companies with a certain unique, niche capabilities which we wanted to bring into India. Also, they had certain customer relationships that were operating in India. Then we said that besides just delivering logistics services, can we move up the value chain and look into the entire realm of the supply chain and try and deliver other services as well. So now our host of services would start from procurement planning, demand management, procurement sourcing and the traditional logistics services of warehousing, transportation etc. If we look at our brand essence, we talk about two things — evolving solutions and enduring relationships.

What are the key sectors you’re looking at besides automotive?
Auto, engineering and industrial is one of the key divisions that we have. Earlier, it used to be 95 percent of our business. Now it’s about 60 percent, the balance 25 percent would be consumer products and 15 percent would be the last-mile solutions, technology and telecom solutions. We always keep evaluating newer and newer areas, be it from a capability of a department or from a sector standpoint.

Over a period of time you made a series of acquisitions which gave TVS SCS the image that it’s a multinational company. Has that attributed to the transformation?
We call it the Cube strategy. On one dimension we have the customer, second, we have capability, and on the third dimension we have geography. Whenever we acquire something, it’s either a customer relationship or a capability. Being an Indian company, having great relationships with Indian companies and MNCs originating here, we have to follow the customer principle, when the customer goes overseas we also go with the customer. When Tata Motors went to Spain, we went to Spain; when Ashok Leyland bought Optare in London, we partnered with them.

What do you think is the evolutionary process taking place in the 3PL freight space?
You can call it 3PL, 4PL. Ultimately, there are two or three things happening. One, the level of outsourcing of what is not core to someone is really catching up even in India. What is happening in the automotive would be the highest in terms of outsourcing, and that itself is 30-35 percent. Overall, if you look at outsourcing as a concept in India, it is less than 15 percent, whereas in the US or in Japan it would be as high as 60-70 percent. In countries like China it could be around 50 percent. This realisation that what is not core to someone, but still adds significant strategic advantage to the customers, they need to get an expert to do that. That’s a process of evolution.
Second, there are companies like us where we are getting into different modes of how we give value to our customers. So there is a discovery, diagnostic and a consultation of the knowledge services that we are doing. Unlike a typical consultant who would go and tell them what to do, we consult only for the execution of the business. You have a one-stop shop. This has seen a good change.

Third, thanks to GST and the media, the whole supply chain has got elevated into a board level discussion now. People were earlier looking at network i.e. where to source, where to manufacture, where to store and where to sell – the criteria was to make decisions tax efficient. This has now become network efficiency. You have to optimise multiple things – time to customer, inventory holding, inventory rotation, tag time. One of the key jobs a 3PL does is eliminating waste.

Technically speaking, if I can source, produce and deliver at zero cost, that’s the best supply chain; but is it possible? It’s not. It has its own challenges.

Do you think that the regulatory framework has evolved meeting the demands of the industry?
There are regulatory and government efforts that are also important for this sector. About two to two-and-a-half years ago, for the first time a department of logistics was created under the ministry of commerce. Before that, every company was dealing with Confederation of Indian Industry (CII) or five different ministries – road transportation, shipping, home, commerce and external affairs. Now everything has come together and there is a modal department or division right now.

Second, the government has stated that our own logistics cost, a percentage of the PDP. Figures vary, but it’s somewhere around 13-14 percent. In a country like China it’s 10 percent, and in more efficient markets it is 7-8 percent. Definitely, there is a need for the government to say that we need to bring down the cost because it is a waste for the entire economy.

Then there is the Logistics Performance Index (LPI) which the World Bank releases [every two years]. We were at [position] 54 in 2014, moved up to position 35 in 2016 and finally moved down to 44 in 2018. The government has started a policy to see that in the next three years we make it to the LPI’s top 20. There are many measures that the government takes that are enablers for the industry and performance.

Do you also see consolidation in this space because logistics or the godown business has been a disorganised sector in India? There seems to be some amount of consolidation because of the GST roll-out. Do you see that is going to be the trend?
The answer is a yes and no. Yes, there is a fragmented transport transformation and warehousing infrastructure available in the country. On one end, the infrastructure side especially warehousing, there is a lot of foreign direct investment (FDI) and private equity money in what is genuine world-class infrastructure.

On the trucking front, fragmentation of ownership is there. I won’t say that consolidation is happening there, but 3PL players like us are coming and adding value. It is a livelihood business for them, not just a strategic investment. How do we take care of that unorganised sector? How do we make our customers feel that they are dealing with an unorganised sector? So it is not a financial consolidation of ownership, but an asset-like model of delivering to our customers using the ecosystem of partners – this is what I would say is consolidation. We are not buying them all over. There is a demand and a supply. How do you bring visibility of both so that the asset gets used properly? We are allowing that ecosystem to sustain.

What do you think has been the impact of digital transformation in India per se, and also in more matured economies?
It’s a no-brainer that everything has to get digitalised. We are in various phases of digitalisation, if I may say that. Besides digitalisation, there are two elements that are making this change. How do I give end-to-end visibility? I can give visibility when goods are safe – put a GPS and you can get it. But end-to-end visibility, part level visibility, and visibility that goes through the entire chain. In the process, a lot of data is being generated, and that’s feeding into our analytics and we are able to take meaningful decisions, both from a predictive and diagnostic basis. On what else we could do to improve the supply chain and how we are serving our customers. Definitely digitalisation is already there and we will see more and more of it.

Through analytics have you identified which section in the supply chain poses the maximum challenges and of what kind?
It will be more micro of each specific case or customer. I wouldn’t be able to say this is an overall or overarching thing. It’s very individual for any customer what issues that come up and then we see how we can solve them. Overall I would say, how do we improve efficiencies, how do we eliminate waste, how do we give better visibility across the flow of material and how do we ensure that they get more for less – these are the overarching themes under which our analytics will work.

Automation and AI are important topics that India still has not got into completely. What are some of the things you have in mind in terms of making TVS SCS to take advantage of these tools?
I’ll put it this way. We will never have the [enough] automation because of the labour cost. There are multiple dimensions where automation will happen. If there is going to be such a large throughput to be given and quality needs to be improved, there has to be some automation. There is optimisation happening in the western world because the labour cost is final. So, only to avoid labour cost if somebody has to automate in India, I don’t think that business case would even out. If there is any low-cost automation where there is effort for the labour gets down and we are able to complement it with labour then that makes it [feasible]. Unless the throughput is going to be extremely high in terms of number of stok keeping units (SKUs), orders delivered, etc and not from the standpoint of labour replacement, I think it is quite a long way as far as India is concerned for pure play, fully automated storage and retrieval systems (ASRS).