The Edge Factor - July 2016

 

Author: Sahil Kapoor

 

Cost Reduction - Opportunities in Transportation

Cost Reduction Opportunities in Transportation

Transportation sector contributes 6.5% to India’s GDP, out of which road transportation contribution is 4.8% as compared to 1% by the railways. Road transportation is highly unorganized, 85% of total transporters own a fleet of fewer than ten trucks. The operational efficiency issues of truck owners coupled with the scarcity of reliable infrastructure have increased the problems for OEMs. Moreover, non-availability of trucks in the peak season means companies have to shell out more money for the same trip. Thus, OEMs should act sensibly to trim the transportation costs, while working closely with the transporters.

In India, a truck covers distance of 350-400 kms in a day compared to 600-700 kms in the United States

Firstly, in India, a truck covers distance of 350-400 kms in a day compared to 600-700 kms in the United States. This primary reason is running time of trucks; generally, a truck driver runs for 8-10 hours during the day. The issue is further aggravated by transportation delays such as documentation check and tax collection. It affects companies, as in-transit inventory increase considerably due to longer transportation time. Moreover, certainty regarding delivery lead-time and quality of the products is hampered as well. Hence, innovations are required in this space to reduce the travel time between two locations. One such idea is the relay concept transportation. In this concept, companies set up hubs on different routes, the driver taking a shipment drops it at the hub, and a new driver takes over from the hub for the journey ahead. Therefore, shipment on a truck moves throughout and reduce the chances of lost sales, excess inventory and so on.

Secondly, many OEMs have a transactional relationship with the transporters. The information sharing with the transporter is limited to annual volume details. In many cases, trucks move in less than the full truckload. Hence, considerable space does not get utilized on the trip. If real-time information related to changes in the shipment volume is shared with transporters, then there could be a possibility of consolidation of shipment among other loads. This is only possible through a strategic partnership with the transporters; a level of trust is required between both the stakeholders instead of mere a transaction.

Transportation cost on a particular route depends on market dynamics

On the other hand, transportation cost on a particular route depends on market dynamics. For example, a 32 feet truck moving from Gurgaon to Kolkata charges 50,000 rupees in the forward journey, contrary to 20,000 rupees in the return trip. This difference is due to non-presence of many industries in Kolkata region. From OEM point of view, prospects of a complementary industry partner could be looked upon that can take the same trucks on the return journey. A robust communication and information system is required for all the stakeholders. It could create a win-win for all the parties, thereby, OEMs can reduce overall cost and transporter can earn more as well.

To sum up, we would like to emphasize that transportation function should be given its due importance. There are pockets in which cost reduction is possible with minimal efforts. The transporters should be taken on board, discussed about the tactical plans and build the collaborative partnership.

Something we found interesting

"A study carried out by TCI and IIM-Calcutta to make an assessment of the operational efficiency of freight transportation by road and recommend ways to improve the same"
 

Read more: http://www.tcil.com/tcil/pdf/TCI%20IIM%20Study%20Report-2011-12.pdf

 

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