“Our global vision is to offer an ‘Amazon-like experience’ in terms of chemical logistics, where customers will be able to place orders, track and reorder only in a matter of few clicks. Our global initiatives, that we tailor to suit the needs of local market, are our steps in the direction of fulfilling this vision,” shares Alok Gautam, Country Logistics and Supply Chain Leader, Dow Chemical International Pvt Ltd (Dow India), during an exclusive interview. Excerpts…
How have been the dynamics of chemical industry changing over the years?
The chemical industry has experienced steady growth over the last five years with a CAGR of 7%. The improvement in manufacturing and increased sophistication in the products and processes has been the primary booster for this growth. Logistics and supply chain for the industry are changing demand patterns and trade trends within countries, increase in logistics costs, and focus on Environment, Health & Safety (EHS). Imports of chemicals are gradually balancing from the complete Middle East focus to South-East Asia. This has given rise to the development of ports on the east coast of the country like Vizag, Paradip and Cuddalore.
Ever-improving road infrastructure, use of railroads to transport chemicals and better awareness & implementation of safety best-practices in the movement of hazardous goods are good signs for the industry. We also see in recent years a trend towards significant investments in high-end vehicles for road transportation by Logistics Service Partners (LSPs). These activities are raising the bar on safety and sustainability of operations for the chemical industry in India.
What are the challenges plaguing chemical industry in India and how can they be overcome?
While the spend on logistics is about 4-5% of the revenue in developed countries, in emerging economies like India, we spend about 10-11% to reach similar scale and efficiency. This discrepancy can be attributed to challenges such as inadequate infrastructure as against increased scale of industries, intermittent adoption of multi-modal transportation, longer lead-time, demand variability, pilferage and theft, and absence of guidelines for storage and transportation of dangerous goods. Recent government initiatives such as diesel de-regulation, thrust on building highways, dedicated freight corridors and adoption of GST will enable immense potential to bring logistics in the front-and-centre of business operations.
How is the GST impact changing the course of action for Dow India?
Over the last quarter, Dow India has worked closely with its partners and vendors to educate them about compliance requirements, cost advantages, warehouse consolidation and documentation to adopt the biggest taxation reform in a seamless manner. So far, GST is delivering on its promise of redesigning supply chains and centralizing hub operations to enable the scale of economies. It is also aiding industry-efficient practices such as bulk-breaking and cross-docking from a central location. In the first two months of the implementation, we have witnessed a decrease in transit lead times, focus on consolidation of shipping points for the industry and ease of operations due to decrease in taxation and documentation. Going forward, the chemical industry is collaborating with the government to ease teething issues as streamlining of e-challans for every state, service tax in freight, HS code requirement from the fragmented industry, etc.
With such a huge volume to cover and with supplies across the globe, how do you enhance the visibility of each value chain?
Our vision is to be partners in sustainable business solutions. We have significantly ramped-up our logistics infrastructure to take products seamlessly into the market. Dow India S4TAR program in 2013 is one such mutually beneficial initiative, which promotes business growth and encourages sustainability excellence with supply chain partners. The S4TAR initiative ensures alignment to the company standards with respect to safety, pollution and environment, and provides a specific framework to recognize and incentivize our partners who exhibit exceptional performance. As we progress, the performance goals are raised every year to keep pace with the highest standards in the industry. By sharing the best practices with our supply chain partners, we hope to achieve performance and sustainability excellence.
Safety is a key concern in the chemical industry. How do you ensure the same?
Procurement, storage and transportation of chemicals and dangerous goods are rolled out in line with SOPs. Right from loading points, en-route transportation to unloading at customer locations, we have checks and balances across the entire chain. For hazardous goods specifically, we conduct Distribution Risk Review (DRR) and the entire route is mapped by experts for any new location. It also includes an assessment of the unloading facility and, if required, includes training to personnel at different nodes.
To counter the menace of pilferage on bulk movement, we are taking steps to share properties of chemicals being transported at loading stations, ensuring the info sheets are with drivers. Today, Dow India transports all hazardous material only in ISO tanks, reducing safety risk on the road considerably. We were the first to introduce ADR (formally, the European Agreement concerning the International Carriage of Dangerous Goods by Road) in the country for hazardous chemicals transportation.
We also have imposed restrictions on night driving and work with our partners to ensure drivers are adequately rested on long journeys. GPS tracking of the vehicles is done by LSPs and reports are shared on daily basis to ensure their safe movement on the road. At Dow India, we are proud to be one of the leading companies for Responsible Care® standard in the chemical industry and supporting initiatives such as Nicer Globe® that aim to reform the transportation of chemicals in the country.
Nicer Globe is an initiative on transportation safety under the Responsible Care® by Indian Chemical Council. This voluntary chemical community initiative is fostering collaboration on transport distribution safety, emergency response and transport security. It also routinely evaluates and improves transport safety capabilities while sharing the best practices in the industry.
How complex is the supply chain at Dow India and how do you manage the same?
The complexity of the supply chain arises from the plethora of industry that we are catering to. As a global chemical conglomerate, we are servicing customers from industries as diverse as agriculture to infrastructure and pharmaceuticals to personal care. We supply packed and bulk chemicals to core manufacturers and OEMs in the country. Transportation of a mix of hazardous and non-hazardous. If we were to categorize the complexity of this industry, it would be under three broad pillars – Infrastructure, Compliance and Emergency Response.
a. Fragmented transport industry: The transport industry in India is largely unorganized as compared to the developed countries. The fragmentation often leads to a scarcity in the availability of skilled drivers that impacts the supply chain significantly. The high attrition rate of the drivers adds to the woe of having untrained workforce carrying the risk of transporting hazardous goods and therefore probable emergency response management.
b. Under-utilized rail transport: The plying of hazardous and non-hazardous goods is majorly dependent on roadways with 60% of the total transportation taking place through this medium. Only 15–20% of the total logistics based transportation is carried out by rail. In a country, which has one of the most robust rail networks, the emphasis on using it for commercial plying of chemicals is considerably low and under-utilized as there is no dedicated route or infrastructure support that makes plying chemicals via railways safe.
a. Dow India is very stringent about the regulatory compliances that we adhere to ensure that all safety guidelines are met and business is smooth. As per our global mandate, we are to follow either global or country standards, whichever is higher to maintain superlative product and service quality.
b. The lack of definitive guidelines for logistics and warehousing in the chemical industry makes it difficult to maintain uniform standards across all our offerings.
c. Additionally, finding a logistics service partner that has the capabilities to incorporate high-quality standards is tough in the country that is still in its nascent stages of logistics improvement.
III. DELAYED EMERGENCY RESPONSE
a. Plying hazardous chemicals always carries a significant amount of risk, even after the implementation of the most stringent safety standards. It is not only transporting chemicals, but also the storage of these materials that adds to the risk.
b. Since the industry is fragmented, the channels through which the safety guidelines can be communicated up to the last member of the value chain. With the limitation on the availability of knowledge, skills and capabilities, the probability of a delay in emergency response increases.
A robust, seamless supply chain is very critical to the growth of the chemical industry. To ensure that we convert these obstacles into growth boosters, we can –
a. Understand customer behaviour and demand patterns to manage the timely supply of products.
b. Ensure maximum visibility in the supply chain by creating real-time tracking avenues.
c. Impart skills training to drivers, who form the bottom the pyramid of the supply chain universe, to ply hazardous & non-hazardous material and regulate emergency response behaviour.
d. Create robust internal systems to get visibility on internal warehousing and inventory in real-time.
How is supply chain revolutionizing Dow India at each step of its growth?
India is one of the priority markets for the company globally. The supply chain has been an integral part of our business strategy in the country and we believe the business growth is directly proportional to the efficiency of the supply chain. In any chemical industry, the key differentiators, traditionally, have been- product quality, service quality and delivery. While product quality is not unique to bulk chemicals, it is the service and delivery quality that act as game-changers in the competitive market. Ensuring a smooth, timely delivery thus is critical. Improvement in the supply chain is a two-pronged journey: Reducing the time to delivery; and Reducing the cost of delivery. Reduction in the cost and time of delivery has a direct impact on the final product, making it extremely crucial for a price-sensitive market like ours.
We are continuously in the process of ramping up our logistics infrastructure to take products seamlessly into the market, given the increase in the quantum of bulk movement. This includes chalking-out the supply chain models, enhancing warehouses capacities, terminals, storage-tanks and lining-up C&F agents, identifying hub locations for storage and supply of packed and bulk material. We also launched the S4TAR program, to improve performance of service providers such as warehouse operators, packed and bulk transporters and customs house agent and ensure alignment to Dow standards with respect to Safety, Pollution and environment.
How crucial is the role of the supply chain in enhancing the performance of the industry?
Nowadays, the scale of operations of chemical plants is becoming bigger. This means that globally the demand is met from fewer plants around the world. This has obviously, led to a rapid increase in the amount of material flow worldwide and therefore, the volume of traffic as well. However, to ensure that the growth is sustainable, we need to concentrate on increasing the efficiency of the industry. The first step in this would be to reduce noise from the system. Reducing the vestigial elements from the value chain would lead to a significant reduction in costs. The reduced cost-benefit can be transferred to the end consumer. Lean and smart organizations will become the foundation of a better performing industry, in my opinion.
How aligned are the practices globally vis-à-vis India?
As a multinational company, with presence in over 160 countries of the world, there is constant learning and sharing of best practices from various markets to translate value to our wide spectrum of customers. Some of the key initiatives in the supply chain that we have implemented in India, taking a cue from our global counterparts are:
A. S4TAR PROGRAM - THE S4TAR program is designed to encourage sustainability excellence in DCIPL’s supply chain partners. It provides a specific framework to recognize our partners who exhibit exceptional performance. Each year, through fair and transparent quarterly and yearly evaluations (which are based on pre-set measurements that are communicated to our partners), the S4TAR awards are presented to the Best Carrier, Best Warehouse, and Best Freight Forwarding Service.
Doing this, we hope to achieve performance and sustainability excellence.
B. DP2F PROGRAM – Recently implemented, the Demand Planning to Fulfilment Program utilizes real-time tracking of inventory (internal and customers’) to ensure that there is no delay in the delivery of materials. Not only does the program give us complete visibility of the customers’ inventory, it also uses data analytics to predict future demand.
Our global vision is to offer an ‘Amazon-like experience ‘in terms of chemical logistics, where customers will be able to place orders, track and reorder only in a matter of few clicks. Our global initiatives, that we tailor to suit the needs of the local market are our steps in the direction of fulfilling this vision.
How is technology playing an enabling role in enhancing supply chain efficiency at Dow India?
I believe that technology forms the backbone of our overall industrial progress, that has fueled the growth of our industry inadvertently. Some of the technology innovations that are unique to Dow and are enhancing the way supply chain has traditionally been functioning are:
a. Data analytics – We have invested in robust big data analytics to understand our customers better and cater to their demand ahead of time
b. DP2F Program – This gives us real-time visibility into the inventory, thus enabling us in managing the supply efficiently
c. Unified platform for merged entities – In an ecosystem where mergers & acquisitions are getting robust day by day, we are using it to our advantage by creating one single platform for all our entities to interact with their customers. They can now place orders, using one single interface, thus ensuring that the value imparted remains constant throughout the chain.
What’s your opinion on the current policy initiatives and what more do you expect from the government for the betterment of the industry?
Some of the recently implemented initiatives like GST have created a level playing field in the industry. The most important change that this tax reform has brought in is the elimination of multiple players from the value chain – since not all of them are tax compliant. This adds to the value transferred to the end consumer.
For an industry that is innovating at an unimaginable pace, it is imperative that the laws and policies evolve along with to suit the market needs. Our first task would be to have a definitive set of regulations for logistics in the chemicals industry. The government and lawmakers should be taking cues from the industry to understand what is of utmost importance to propel growth and channelize their efforts towards bringing about changes accordingly.