Mumbai: BK Madhav and Sons is one of the many customs clearing agents in the Ballard Estate area of south Mumbai. Like many of his peers, Prathmesh Madhav, the firm’s promoter, was never interested in investing in information technology (IT) infrastructure.
The economic slowdown has now compelled Madhav, who manages customs clearing for the Indian unit of a global automobile firm, to integrate his processes and trim costs using technology. This has also cut his customs filing time to five minutes from three days earlier.
Three objectives: Logistics firm AFL’s chairman and managing director Cyrus Guzder says outsourcing could also help increase productivity and quality of service besides cutting costs. Ashesh Shah / Mint
Like BK Madhav, many other small, family-controlled Indian logistics firms are considering investing in IT infrastructure to cut costs and outsourcing non-core functions.
“Recession is forcing logistics companies to take a hard look at their operations and look at ways to improve productivity and work on customer satisfaction and retention,” said Sumeet Nadkar, head of the logistics strategic business unit at Kale Consultants Ltd, a software firm in Mumbai that sells applications to logistics companies and airlines. “This industry has very low technology adoption. There are challenges in proliferation of technology and a lot of players are taking time with their technology buying decisions.”
For a mid-sized freight forwarding company, administration costs can be reduced by at least 10%. Features such as automated email or SMS (short messaging service) alerts to customers and partners also minimize telephone costs, while auto emailing invoices eliminate paper and courier bills, Nadkar said.
“This will further reduce 20-30% of communication costs. Similarly, the application sends proactive alerts to prevent service failures. That means there is savings in terms of steps taken to correct the service failures and additional resources required for the same,” he added.
Cyrus Guzder, chairman and managing director of logistics firm AFL Ltd, says there are three objectives behind outsourcing certain functions. “One is cost savings. But the most important reason could be increasing the productivity and having superior quality of service,” he said. AFL outsources its entire software development, hardware support and network management to Accenture Ltd.
Amit Maheshwari, chief executive officer and managing director of Mumbai-based Softlink Logistic Systems Pvt. Ltd, said technology can help prevent revenue leakages from operational issues as it streamlines and integrates the various processes involved.
For instance, key firms in the logistics chain, such as customs agents, freight forwarders, exporters and importers, can exchange data without needing to re-enter it manually at each stage, he said.
“Technology can decrease operational cost by almost 20% if used appropriately. Our clients have themselves given examples of reducing the man hours from 120 hours to 5 minutes for certain operational processes,” Maheshwari said. Softlink has some 2,500 clients.
“Moreover, given enhanced and redundant communications and connectivity infrastructures, shipping documents can just as easily and transparently be processed in Mumbai, Mexico or Manila,” said Jaison Augustine, vice-president, industrial and infrastructure services, at New York-based outsourcing firm WNS (Holdings) Ltd. “The average cost savings at different levels for a logistics company is anywhere between 30-60%.”
At least two big Indian logistics companies have started outsourcing some of their activities to outsourcing firms to cut costs, Augustine said over the phone from New York. He did not name the two firms.
The average cost savings at different levels for a logistics company is anywhere between 30-60%. Sandeep Bhatnagar / Mint
“There is huge potential for Indian logistics companies for outsourcing. Each branch of Indian logistics companies will be having documentation and finance operations. All these functions can be consolidated into one back office,” he said.
For example, document processing accounts for 35-50% of the total personnel costs in the logistics industry. By partnering with an outsourcing firm and implementing a transaction-based pricing model, logistics companies can reduce transaction processing expenses by 30-50%, Augustine said.
In North America, the in-house cost of processing a bill of lading can vary between $5 (Rs242) and $8, while offshoring can reduce the expense to $2-4. Processing an airway bill can cost a logistics firm between $0.30 and $0.40, but an offshore firm can deliver the process at $0.10-0.20.
“In India, these numbers could vary because labour is cheap, but the company can hugely save by consolidating its operations or outsourcing it to a company,” Augustine added.
Jason D’Souza, director, information technology, DHL Lemuir Logistics Pvt. Ltd, said his company has decided to outsource IT infrastructure management because of the downturn. “You need a large in-house team to develop applications, manage telecom infrastructure and handle other functions including payroll and network management. We have now consolidated all operations and are outsourcing to various companies. We are expecting cost savings up to 20-25%,” D’Souza said.
WNS’ Augustine said a leading European non-vessel operating common carrier (NVOCC) wanted to reduce its mounting staff costs in Europe, Latin America and Asia. Through outsourcing, WNS standardized and migrated the NVOCC’s import bill of landing and import manifest preparation processes in all its locations to one of WNS’ offshore delivery centres, resulting in a 50% cost reduction.
An NVOCC is a cargo consolidator that buys space from a carrier and sells it to small exporters and importers. They do not own ships.